BITCOIN FUTURES RISE UP TO 26% ON FIRST DAY OF TRADING MARKETS
▶ Cboe halts trading twice to calm market, as demand causes website delays and temporary outages
Bitcoin has landed on Wall Street with a bang.
Futures on the world’s most popular cryptocurrency surged as much as 26 per cent from the opening price in their debut session on Cboe Global Markets’s exchange, triggering two temporary trading halts designed to calm the market.
Initial volume exceeded dealers’ expectations, while traffic on Cboe’s website was so heavy that it caused delays and temporary outages. The website’s problems had no impact on trading systems, Cboe said.
“It is rare that you see something more volatile than bitcoin, but we found it: bitcoin futures,” said Zennon Kapron, managing director of Shanghai-based consulting firm Kapronasia. The launch of futures on a regulated exchange is a watershed for bitcoin.
The Cboe contracts, soon to be followed by similar offerings from CME Group and Nasdaq, should make it easier for masinstream investors to bet on the cryptocurrency’s rise or fall. Bitcoin wagers have until now been mostly limited to venues with little or no oversight, deterring institutional money managers and exposing some users to the risk of hacks and market breakdowns.
Bitcoin futures expiring in January climbed to US$17,540 (Dh64,000) as of 11.29am in London from an opening level of $15,000, on 2,798 contracts traded.
The spot price climbed 6.4 per cent to $16,647 from the Friday 5pm close in New York, according to the composite price on Bloomberg.
The roughly $900 difference reflects not only the novelty of the asset but also the difficulty of using the cash-settled futures to trade against the spot, strategists said. “In a normal, functioning market, good old arbitrage would settle this,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Hellerup, Denmark, said.
“If they were deliverable you could arbitrage the life out of it.”
Proponents of regulated bitcoin derivatives say the contracts will increase market transparency and boost liquidity, but sceptics abound.
JPMorgan Chase chief executive officer Jamie Dimon has called bitcoin a “fraud”, while China’s government has cracked down on cryptocurrency exchanges this year.
The Futures Industry Association – a group of major banks, brokers and traders – said this month that contracts in the US were rushed, without enough consideration of the risks.
So far though, trading has kicked off without any major hiccups.
Dealers said volume was high for a new contract, even though it was tiny relative to more established futures.
And the trading halts took effect just as Cboe had outlined in its rules. Transactions stopped for two minutes after a 10 per cent gain from the opening price, and for five minutes after a 20 per cent jump.
Another five-minute halt will take effect if the rally extends to 30 per cent, Cboe said in a notice on its website.
“It was pretty easy to trade,” said Joe Van Hecke, managing partner at Chicago-based Grace Hall Trading.
“I think you’ll see a robust market as time plays out.”
For now, Cboe futures account for a tiny slice of the world’s bitcoin-related bets. The notional value of contracts traded in the first eight hours totalled about $40 million. Globally, about $1.1 billion of bitcoin traded against
It is rare that you see something more volatile than bitcoin, but we found it: bitcoin futures ZENNON KAPRON Managing director, Kapronasia
the US dollar during the same period, according to Cryptocompare.com.
Some people who would like to trade futures are having a hard time accessing the market because not all brokers are supporting it initially, said Garrett See, chief executive officer of DV Chain.
Participation may also be limited because of higher capital requirements and tighter risk limits, Mr See said.
The new derivatives contracts should thrust bitcoin more squarely into the realm of regulators, banks and institutional investors.
Both Cboe and CME on December 1 got permission to offer the contracts after pledging to the US commodity futures trading commission that the products don’t run afoul of the law, in a process called self-certification.
Not everyone is happy with the expedited roll-out.
Exchanges failed to get enough feedback from market participants on margin levels, trading limits, stress tests and clearing, the Futures Industry Association said this month.
In November, Thomas Peterffy, the billionaire chairman of Interactive Brokers Group Inc, wrote an open letter to CFTC Chairman J Christopher Giancarlo, arguing that bitcoin’s large price swings mean its futures contracts shouldn’t be allowed on platforms that clear other derivatives.
Still, Interactive Brokers is offering its customers access to the futures, with greater restrictions.
The firm’s clients won’t be able to go short, and Interactive’s margin requirement, or how much investors have to set aside as collateral, will be at least 50 per cent.
That’s a stricter threshold than both Cboe’s and CME’s.