LATE RUSH TO GET ON THE BITCOIN ROLL
Futures trading starts today and the cryptocurrency was up almost a third this week, but it is extremely volatile
Speculators rushed to buy bitcoins last week, pushing it to record levels of close to US$20,000.
The push was driven by fears of missing out as one of the world’s largest exchanges today begins futures trading of the digital currency.
The Chicago Board Options Exchange Global Markets is expected to launch a bitcoin futures contract, to be followed by the CME Group next week.
This is a watershed for bitcoin because many professional investors have been unwilling to do business on the unregulated platforms where it trades. The two exchanges are regulated.
Last week the price of bitcoin went on a wild ride as more than half a million new users opened wallets with bitcoin wallet provider Blockchain, the company said, doubling the number of users to 20 million since last year.
The software application for Coinbase, which operates one of the world’s largest digital currency exchanges, climbed to the top of Apple’s download ranking for free apps in the US on Thursday.
That day on Coinbase’s Global Digital Asset Exchange, or GDAX, prices zoomed up to almost $20,000 from $16,000 in about 90 minutes, before sinking back down. But, for the week, bitcoin was still up almost a third.
Since the start of October, the cryptocurrency has more than tripled in price. This year it has soared about fifteenfold, stoking concerns that the bubble would burst in dramatic fashion. Its rapid rise has drawn in millions of new investors.
“Like a herd, market participants have a tendency to follow the money,” Fawad Razaqzada, market analyst, at Forex.com in London, told Reuters.
“So when bitcoin goes up in value by hundreds, if not thousands, of dollars a day, the fear of missing out kicks in and speculators rush to buy the cryptocurrency.”
But there is concern that the volatility of bitcoin prices indicate that there is a crash on the way. It lost almost a fifth of its value in 10 hours on Friday, after surging more than 40 per cent in the preceding 48 hours.
In a hectic day on Thursday, bitcoin leapt from below $16,000 to $19,500 on GDAX, while it was still changing hands at about $15,900 on the Luxembourg-based Bitstamp.
Having then climbed to $16,666 on Bitstamp about 0200 GMT on Friday, it tumbled to $13,482 by about 1200 GMT for a slide of more than 19 per cent. It was last down 8.2 per cent at $15,232.32 on Bitstamp.
Craig Erlam, senior market analyst at forex trader OANDA in London, said on Friday that investors may have taken profits on bitcoin gains ahead of the Chicago launch, which could open the door to short speculators who believe the price has risen far too quickly.
“The initial bounce after this morning’s sell-off suggests there’s still appetite for buying dips, but that may not last if we don’t see the kind of rebound witnessed previously,” Mr Erlam said.
“Saying that, the way bitcoin is trading at the minute, I don’t think anyone would be surprised to see it end the day in the green.”
As investors braced for the launch, some big US banks including JP Morgan Chase and Citigroup will not immediately clear bitcoin trades for clients when investors start trading futures contracts, the Financial Times reported on Friday.
On Thursday, Goldman Sachs said it planned to clear bitcoin futures for some clients as the new contracts went live on exchanges in the coming days.
As bitcoin slumped, other cryptocurrencies climbed. Ethereum, the second-biggest, was up nearly 8 per cent, trade website Coinmarketcap said.
White House economic adviser Gary Cohn said he and other government officials were monitoring the rise in bitcoin, but he did not see any serious threat in the phenomenon.
“We’re watching it, of course we’re watching it,” Mr Cohn, the former president of Goldman Sachs, told Bloomberg Television on Friday. “Right now we don’t think it’s a serious risk, but right now we’re watching it.”
Asked if new regulation might be needed, he said that the Commodity Futures Trading Commission had already approved bitcoin futures contracts.
“We’ll see what goes on here,” Mr Cohn said. “It’s an evolving market. We’ve watched this happen before as markets have evolved.”
Last week the Futures Industry Association said the CBOE and larger exchange operator CME were rushing the futures to market without proper consideration of the risks.
The trade group, made up of some of the world’s largest derivatives brokerages, said it was concerned that the cryptocurrency’s volatility could lead investors to default if prices swing. That could sting companies that clear the contracts.
When bitcoin goes up by hundreds, if not thousands, of dollars a day, the fear of missing out kicks in FAWAD RAZAQZADA Analyst at Forex.com