Wall St in­vestors see steep losses on early Bit­coin fu­tures con­tracts

The Sunday Telegraph - Money & Business - - Front page - By James Tit­comb

WALL STREET in­vestors are nurs­ing heavy losses on Bit­coin-linked in­vest­ments as the first monthly fu­tures con­tracts ex­pire.

One-month Bit­coin fu­tures, which traded at close to $20,000 (£14,700) sev­eral weeks ago, have slumped in re­cent weeks as the cryp­tocur­rency gold rush ap­pears to fade.

Bit­coin fu­tures con­tracts launched on the Chicago Board Op­tions Ex­change (CBOE) in mid-de­cem­ber. It was seen as the mo­ment that the cryp­tocur­rency gained le­git­i­macy among pro­fes­sional in­vestors, al­low­ing them to get a slice of the boom­ing mar­ket for dig­i­tal cur­ren­cies with a reg­u­lated fi­nan­cial prod­uct, in­stead of buy­ing Bit­coin di­rectly.

How­ever, Bit­coin’s en­try into the main­stream has co­in­cided with a sharp dip in its price. With days be­fore they are due to ex­pire, the con­tracts have lost as much as a fifth of their value, sug­gest­ing that pro­fes­sional in­vestors have missed out on the leap in prices dur­ing most of last year.

The first monthly Bit­coin fu­ture is due to ex­pire next week, on Jan 17. At around $16,000, the lev­els they were trad­ing at on Fri­day, the fu­tures have lost al­most 20pc from their peak, and over 15pc from the first day of trad­ing, when they closed at $18,500.

CBOE’S Bit­coin fu­tures are linked to the price on Gemini, an on­line ex­change op­er­ated by Tyler and Cameron Win­klevoss, the twin broth­ers who own more than $1bn worth of the dig­i­tal cur­rency, and the price of the con­tracts mir­ror that of Bit­coin it­self.

Since the fu­tures be­gan trad­ing, Bit­coin has peaked and then re­versed some of its ex­cep­tional price rises, mean­ing that while many early owners are sit­ting on seis­mic gains, the pro­fes­sional in­vestors who bought up fu­tures con­tracts last month hop­ing for the party to con­tinue have largely lost out.

The losses, as well as con­tro­ver­sies over how reg­u­la­tors have ap­proved the fu­tures con­tracts, threat­ens to dampen pro­fes­sional en­thu­si­asm about Bit­coin.

Last week, the US deriva­tives reg­u­la­tor, the Com­mod­ity Fu­tures Trad­ing Com­mis­sion, said it would as­sess the “self-cer­ti­fi­ca­tion” regime that al­lowed the CBOE and the Chicago Mer­can­tile Ex­change to launch Bit­coin fu­tures after crit­ics said it should have con­sulted the mar­ket.

Ma­jor banks have said the watch­dog ap­proved the launches too eas­ily and that there was a lack of trans­parency about how the con­tracts would work.

Last week both the US Se­cu­ri­ties and Ex­change Com­mis­sion and North Amer­i­can Se­cu­ri­ties Ad­min­is­tra­tors As­so­ci­a­tion (NASAA) warned about the dan­gers of cryp­tocur­ren­cies, in­clud­ing fu­tures con­tracts linked to the dig­i­tal cur­rency.

NASAA said there was a “high risk of fraud” and that the coins had an “un­proven track record”, while the SEC said sev­eral Ini­tial Coin Of­fer­ings, cryp­tocur­rency-based crowd­fund­ing schemes, are not fol­low­ing se­cu­ri­ties laws. Bit­coin’s price has fallen from a high of $20,000 to as low as $12,000 in re­cent weeks as ri­val cryp­tocur­ren­cies have gath­ered steam, al­though it was given a boost when it emerged the Sil­i­con Val­ley ven­ture cap­i­tal­ist Peter Thiel had placed a ma­jor bet on its fu­ture by in­vest­ing.

Peter Thiel, the Sil­i­con Val­ley ven­ture cap­i­tal­ist, boosted Bit­coin’s stand­ing with his re­cent in­vest­ment

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