Bitcoin Has a Future and You Can Go Long or Brief: QuickTake Q&A
CME Launches Bitcoin Futures
Trading te bitcoin futures began a week ago on Cboe Global Markets Inc. Its thicker rival, CME Group Inc., began suggesting a rivaling product on Dec. 17. The trading is ,a milestone ter the acceptance of the digital currency by the world of mainstream investing, spurred ter part by bitcoin’s meteoric rise this year. Skeptics still abound, however, including executives at some of the world’s largest banks. For the doubters, at least there’s this silver lining: Futures trading may add an chance to burst what they see spil a bubble.
1. How is it going so far?
Ter the very first week, more than Ten,000 of Cboe’s contracts — signifying about $180 million of bitcoin — were traded, according to gegevens compiled by Bloomberg. There wasgoed primarily a big difference inbetween the price of Cboe’s product and the price of bitcoin, a sign the market wasn’t very efficient. The gap peaked at 13 procent. But by the end of the week it had shrunk to less than Three procent. ,Bitcoin futures trading on CME — a much thicker player than Cboe — got off to a swifter commence and with more efficient pricing. About twice the value of the most active contract wasgoed traded ter the very first hour than on Cboe’s debut. And the futures traded only about Two procent higher than bitcoin itself after the very first two hours.
Two. How does bitcoin normally trade? ,
On a network of unregulated exchanges, which have their own prices for the digital currency — and a long history of problems that range from service crashes to hacks and thefts. Buying and holding bitcoin is essentially a bet that its value will rise further. Not everybody who wants to get involved ter this market thinks so.
Trio. What does it mean to trade bitcoin futures?
Futures contracts — which derive their value from some underlying thing like corn, wheat, or te this case, a digital currency — oblige a buyer to pay for something at an agreed-upon price at a certain date te the future. They can be used to make a bet on which way the market for a product is going to budge. They can also be used to brief a market, or bet that prices will fall.
Four. Who’s going to be suggesting futures contracts? ,
Three of the largest U.S. exchange companies, all overseen by the Commodity Futures Trading Commission, are debuting bitcoin futures contracts. Along with Cboe and CME, Nasdaq Inc. is programma to introduce bitcoin futures next year. The other major U.S. exchange player, Intercontinental Exchange Inc., has not yet announced any plans to do so. “,Wij may be stupid for not being very first on that,”, Jeff Sprecher, CEO of ICE, said at an investor conference this month.
Five. Why are they doing it?
Exchanges want to offerande what investors want to trade, and a loterijlot more people want to trade ter the bitcoin market than even a year ago. Coinbase, a large bitcoin exchange, wasgoed shocked by mighty traffic spil bitcoin soared toward $Ten,000 te late November. CME, which spil recently spil October hadn’t made a decision on how to address cryptocurrencies, ultimately determined the allure wasgoed too much to stand against. For traders, bitcoin offers an entirely fresh landscape to navigate. One hallmark of bitcoin trading is unpredictable price swings, a stark tegenstelling to the eerie tranquil that’s lodged overheen other financial markets, including U.S. equities.
6. What are the risks? ,
Not everyone thinks derivatives based on bitcoin are ready for prime time. One worry is the volatility that so far has bot a key feature of the digital currency market. Just three days before Cboe’s product wasgoed slated to be introduced, bitcoin had one of its wildest sessions everzwijn: On Coinbase’s GDAX exchange, prices zoomed up to almost $20,000 from $16,000 ter only about 90 minutes, before crashing back down.
7. So are bitcoin futures a bad idea? ,
Some big traders think futures may be premature. The Futures Industry Association — a group of major banks, brokers and traders — said the contracts were rushed without enough consideration of the risks. Ter an open letterteken to the exchanges, the group questioned whether they would be able to adequately police market manipulation ter bitcoin. The group said the exchanges should have sought more industry terugkoppeling on margin levels, trading boundaries and stress tests for the system before beginning trading. Cboe and CME are requiring traders to set aside an unusually large pile of specie to serve spil collateral to back purchases.
8. What is bitcoin, anyway?
This plain question draws a surprising amount of debate ter the investing world. While bitcoin advocates call it a currency, the CFTC views it spil a commodity. Skeptics view it spil a commodity without any intrinsic value, with request driven by novelty and the scarcity imposed by bitcoin’s software protocols, which will cap its production. Some analysts think it will trade more like a volatile stock, while others expect it to develop into a fresh asset class entirely. Thesis arguments are being debated among trading desks at banks and hobbyists alike.
9. Is anyone betting against it?
Those who believe bitcoin is overheated have a chance to brief the market with the introduction of bitcoin futures. Some hedge funds have bot waiting for the chance to bet against the cryptocurrency. Interactive Brokers Group Inc. also determined to permit customers to bet against bitcoin futures under certain conditions. Previously, they only permitted clients to take long positions.
The Reference Shelf
- A cheat sheet on bitcoin’s most vooraanstaand bears and bulls.
- A Bloomberg QuickTake guide to bitcoin and blockchain.
- A Bloomberg View katern by Matt Levine on valuing bitcoin.
– With assistance by Camila Russo, and Todd White