Bitcoin futures security launched
Another security based on the price of bitcoin, the digital currency that has soared in value and volatility this year, has begun trading on the Chicago Mercantile Exchange.
The CME Group, which owns the exchange, opened up bitcoin futures for trading yesterday afternoon. The futures contract that expires in January opened higher at US$20,650 ($29,459), then declined steadily. The futures were trading at US$18,895 by mid-afternoon.
The CME futures, like the ones that CME competitor the Cboe started trading last week, do not involve actual bitcoin. The CME’s futures will track an index of bitcoin prices pulled from several private exchanges. The Cboe’s futures track bitcoin prices on the particular private exchange known as Gemini.
Each contract sold on the CME will be for five bitcoin.
As bitcoin’s price has skyrocketed on private exchanges this year, largely under its own momentum, interest on Wall St has grown. The virtual currency was trading below US$1000 at the beginning of the year, and rose to more than US$19,000 on some exchanges in the days leading up to its debut on the Cboe and CME. Bitcoin was trading at US$18,786 around the same time.
But the growing interest in bitcoin has raised questions of whether its value has got too frothy. The Securities and Exchange Commission put out a statement this month warning investors to be careful with any investment in bitcoin or other digital currencies. Further, the Commodities Futures Trading Commission has proposed regulating bitcoin like a commodity, not unlike gold, silver, platinum or oil.
Futures are a type of contract where a buyer and seller agree on a price on a particular item to be delivered on a certain date in the future, hence the name. Futures are available for nearly every type of security out there, but are most familiarly used in commodities, such as oil wheat, soy and gold.
Bitcoin is the world’s most popular virtual currency. Such currencies are not tied to a bank or government and allow users to spend money anonymously. They are basically lines of computer code that are digitally signed each time they are traded.
A debate is raging on the merits of such currencies. Some say they serve merely to facilitate money laundering and illicit, anonymous payments. Others say they can be helpful methods of payment, such as in crises where national currencies have collapsed.