Daniele Bianchi, assistant professor of finance at Warwick Business School, says bitcoin is “gaining more and more legitimacy as an asset class”.
Today’s launch of Bitcoin futures on the Chicago Board Options Exchange (CBOE) has the potential to add further momentum and thus increase the appeal of the cryptocurrency to both institutional and retail investors.
“As a matter of fact, the introduction of derivatives provides the necessary market structure for institutions to trade on Bitcoins without owning them as, in fact, futures contracts on Bitcoin are cash settled. This will likely lead to the creation of ETFs and other more liquid instruments, potentially increasing market activity and aggregate demand by orders of magnitude.
But Britain’s best-known fund manager is seriously unhappy about the bitcoin boom.“As a matter of fact, the introduction of derivatives provides the necessary market structure for institutions to trade on Bitcoins without owning them as, in fact, futures contracts on Bitcoin are cash settled. This will likely lead to the creation of ETFs and other more liquid instruments, potentially increasing market activity and aggregate demand by orders of magnitude.
Neil Woodford has dismissed bitcoin as a modern tulip bulb, saying his firm are “struggling to find a sensible” explanation for the cryptocurrency’s surge in value this year.
Markets calm as bitcoin flies
Bitcoin is hogging most of the action in the financial markets today.In the City, the FTSE 100 has risen by 45 points - or 0.6% - in a gentle trading session. European markets are more subdued, with France’s CAC index as flat as un crêpe
The jump in bitcoin futures today has calmed fears of a crash, says Craig Erlam of OANDA:While investors go doolally for bitcoin futures, the more traditional markets were pretty dreary this Monday.
Bitcoin is back trading near record highs this morning, allaying fears for now that the ability to short would trigger a sell-off.
The new bitcoin futures contracts have attracted more attention than expected, says Hussein Sayed, chief market strategist at FXTM:
The initial reaction was beyond expectations with the futures contract climbing more than 20% and triggering two trading halts. CBOE’s website experienced unprecedented traffic which may well have sent a new benchmark; the frenetic activity led to delays and outages. So far, it seems professional investors aren’t willing to bet against the bitcoin, despite the many warnings of a bubble that will burst soon.
Many traders aren’t even interested in the price direction, but the listing of the futures contract on CBOE and later next week on the CME, will provide them an arbitrage trading opportunity due to the vast pricing differences. However, the arbitrage trading will lead to improved price efficiency and probably less volatility. After volatility settles down, the focus will return to the price direction.
Bitcoin’s rally comes in the face of another warning that the cryptocurrency is a speculative bubble that won’t end well.
Yesterday, the Reserve Bank of New Zealand’s acting governor Grant Spencer warned:
Bloomberg explains:
Good morning. It’s a red letter day for bitcoin as the cryptocurrency makes its long-anticipated debut on the world’s futures market.
For the first time, institutional investors can bet on whether bitcoin will continue to rise in value, or crash back to earth. This could be a watershed moment for digital currencies, moving them closer to the mainstream.
There’s already a surge of interest in bitcoin this morning, since the Chicago Board Options Exchange (CBOE) launched its futures contract.
Bitcoin’s price has surged by up to 25%, forcing CBOE to temporarily halt trading - twice! - to let the volatility cool off.
Dealers reported that there is more interest than expected, with a torrent of traffic hitting CBOE’s website.
Once the situation calmed down, Bitcoin futures expiring in January are changing hands at $17,780 - up from an opening level of $15,000.
That surge in value has pushed bitcoin futures way ahead of the ‘spot’ price of bitcoin -- ie, how much you’d have to pay for one right now.
In other words, investors are anticipating that bitcoin will keep pushing higher.
Several major banks have approached the launch of bitcoin futures cautiously, given concerns over the validity of cryptocurrencies.
As Associated Press put it:
Yesterday, the Reserve Bank of New Zealand’s acting governor Grant Spencer warned:
In theory, the launch of derivative contracts today should help bitcoin find its true value (as investors will now be able to bet against it).....“It looks remarkably like a bubble forming to me.
“Over the centuries we’ve seen bubbles, and this appears to be a bit of a classic case. With a bubble, you never know how far it’s going to go before it comes down.”
Chart: Bitcoin triggers the circuit breakers
CBOE’s circuit breakers have been busy this morning, as bitcoin futures trading began.Bloomberg explains:
The first trading halt came about 2 1/2 hours after the session began, while the second one triggered after four hours. Cboe imposes circuit breakers to curb volatility, halting transactions for two minutes if prices rise or fall 10 percent, and for five minutes at 20 percent.
Trading will stop for at least five minutes if the rally extends to 30 percent, Cboe said in a notice on its website.
For the first time, institutional investors can bet on whether bitcoin will continue to rise in value, or crash back to earth. This could be a watershed moment for digital currencies, moving them closer to the mainstream.
There’s already a surge of interest in bitcoin this morning, since the Chicago Board Options Exchange (CBOE) launched its futures contract.
Bitcoin’s price has surged by up to 25%, forcing CBOE to temporarily halt trading - twice! - to let the volatility cool off.
Dealers reported that there is more interest than expected, with a torrent of traffic hitting CBOE’s website.
Once the situation calmed down, Bitcoin futures expiring in January are changing hands at $17,780 - up from an opening level of $15,000.
That surge in value has pushed bitcoin futures way ahead of the ‘spot’ price of bitcoin -- ie, how much you’d have to pay for one right now.
In other words, investors are anticipating that bitcoin will keep pushing higher.
Several major banks have approached the launch of bitcoin futures cautiously, given concerns over the validity of cryptocurrencies.
As Associated Press put it:
Many larger Wall Street brokerages and clearinghouses, including Goldman Sachs and JPMorgan Chase, are either not allowing customers to trade bitcoin futures or only allowing select clients to do so. Other brokerages are putting restrictions on the amount of margin a trader can use in bitcoin futures, or putting limits on the amount that can be purchased.
The digital currency has had more than its fair share of critics on Wall Street. JPMorgan Chase CEO Jamie Dimon has called bitcoin “a fraud.” Thomas Peterffy, chairman of the broker-dealer Interactive Brokers Group, expressed deep 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.”
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