Biz / Tech

Bitcoin futures spark excitement

Reuters
The newest way to bet on Bitcoin will arrive, when futures of the cryptocurrency that has taken Wall Street by a storm begin trading.
Reuters

The newest way to bet on Bitcoin will arrive, when futures of the cryptocurrency that has taken Wall Street by a storm begin trading.

This has given an extra kick to the cryptocurrency’s scorching run this year. Bitcoin’s price soared so far this month, but it has made sharp moves in both directions in recent days, falling by almost a fifth on Friday after surging more than 40 percent in the previous 48 hours.

Yesterday, Bitcoin was up about 3 percent at US$15,000 on the Luxembourg-based Bitstamp exchange. On the Gemini Exchange, it was at US$15,650.

Bitcoin fans appear excited about the prospect of an exchange-listed and regulated product and the ability to bet on its price swings without having to sign up for a digital wallet. Others, however, caution that risks remain for investors and possibly even the clearing organizations underpinning the trades.

The futures are cash-settled contracts based on the auction price of Bitcoin in US dollars on the Gemini Exchange, which is owned and operated by virtual currency entrepreneurs Cameron and Tyler Winklevoss.

“The pretty sharp rise we have seen in Bitcoin in just the last couple of weeks has probably been driven by optimism ahead of the futures launch,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

“You are going to open up the market to a whole lot of people who aren’t currently in Bitcoin,” Frederick said.

The futures are an alternative to a largely unregulated spot market underpinned by cryptocurrency exchanges that have been plagued by cybersecurity and fraud issues.

The launch has so far received a mixed reception from big US banks and brokerages, though.

Interactive Brokers Group Inc plans to offer its customers access to the first Bitcoin futures when trading goes live but will bar clients from assuming short positions and has margin requirements of at least 50 percent.

Several online brokerages, including Charles Schwab Corp and TD Ameritrade Holding Corp, will not allow trading of the new futures immediately.

JPMorgan Chase & Co, Citigroup Inc and other large US banks will not immediately clear Bitcoin trades for clients, the Financial Times reported on Friday.

Goldman Sachs Group Inc said on Thursday it was planning to clear such trades for certain clients.

Bitcoin’s manic run-up this year has boosted volatility far in excess of other asset classes. The futures trading may help dampen some of the sharp moves, analysts said.

“Hypothetically, volatility over the long run should drop after institutions get involved,” said Ophir Gottlieb, chief executive officer of Los Angeles-based Capital Market Laboratories. “But there may not be an immediate impact, say in the first month.”


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