Bitcoin tops $19,000 then falls back; banks raise risk concerns
NEW YORK — The price of bitcoin swung wildly Thursday, rising to more than $19,000 US only to fall sharply within minutes, as both the euphoria and anxiety surrounding the virtual currency escalated days before trading in bitcoin futures begins on a major U.S. exchange.
The concerns about its volatility have led some Wall Street banks and trade groups to raise concerns about the potential implications of trading bitcoin. Banks also appear likely to limit customers’ access to the futures when they first start trading.
Bitcoin was valued Thursday at $17,167 US as of 3 p.m. PST, according to large bitcoin exchange Coinbase, after briefly surging above $19,000 Thursday morning. At the start of the year, one bitcoin was worth less than $1,000.
Bitcoin’s wild swings occurred as Wall Street prepares for bitcoin futures to start trading on the Chicago Board Options Exchange on Sunday evening and on the Chicago Mercantile Exchange a week later. The futures are designed to reflect the price of bitcoin without an investor having to physically hold the currency, not unlike how oil, gold, copper or cocoa prices are determined by futures contracts.
Yet the dawn of futures trading has some parties on Wall Street concerned. A group of banks, brokerages and clearinghouses came out and complained that U.S. federal regulators approved the futures too quickly and without properly considering the risks inherent in bitcoin.
The Futures Industry Association, a trade association that represents Wall Street banks, brokerages and clearinghouses, sent a letter to the Commodities Futures Trading Commission this week, saying the institutions should have been consulted before trading in bitcoin futures was approved. The association’s members expressed concern that they could be on the hook for large sums of money if extreme volatility in bitcoin resulted in big losses for some customers.
Goldman Sachs, one of the biggest investment banks in the U.S., said it will allow only a limited number of clients to trade the CBOE’s bitcoin futures when they launch next week. Bank of America will not allow clients access to the futures.
A person familiar with the matter said JPMorgan Chase will not allow clients access to the futures on the first trading day, and will make an evaluation after that based on what it sees in the futures market. This person requested anonymity because the decision hasn’t been announced publicly.
The Wall Street Journal reported that Citigroup will also not allow clients access to bitcoin futures, but a Citi spokesman declined to comment. Morgan Stanley declined to comment.
Thomas Peterffy, chairman of the broker-dealer Interactive Brokers Group, expressed concerns about the trading of bitcoin futures last month, saying “there is no fundamental basis for valuation of Bitcoin and other cryptocurrencies, and they may assume any price from one day to the next.”
The futures signal more mainstream acceptance of the currency, but also open up bitcoin to additional market forces. Futures allow for the shorting of bitcoin — that is betting that the price of bitcoin will go down — which presently is very difficult to near impossible to do. With the currency’s tremendous run up in price in recent days, it could become a target for those not sold on its current lofty value.
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.