And finally, here’s our news story in bitcoin’s debut on the futures markets, and the latest warnings that the crypto-currency is a speculative bubble:
That’s a good moment to wrap up. Thanks for reading and commenting. GW
As the first day of bitcoin derivatives trading draws to a close, forecasts that it would trigger an immediate wave of selling look wide of the mark.
The January 2018 futures contract is trading close to its earlier highs, at around $18,300. That’s up from an opening price of $15,000, and ahead of the ‘spot’ price - which is closing in on $17,000 tonight.
Here’s the situation in Chicago:
Here’s a quick explanation of bitcoin futures:
Here's how bitcoin futures actually work. pic.twitter.com/JibH5dRLot
— CNBC (@CNBC) December 11, 2017
Edward Tilly, chairman and chief executive officer at Cboe Global Markets, has spoken to Bloomberg TV about the bitcoin futures launch today.
Tilly says it has been “business as usual”, with more than 3,000 bitcoin contracts sold on Cboe as market participants get up and running.
Apparently there were just 12 registered traders involved with the bitcoin futures market at launch - that has risen to 22 during the trading day.
That’s a fairly small pool of traders, frankly, given all the interest in digital currencies. I suspect major investors are treating bitcoin cautiously today, as they watch events unfold....
Just because you can do something, doesn’t mean you should do, right?
That mantra applies to bitcoin futures trading as much as anything else. So before you take the plunge, check out Bloomberg’s eight-point list of stuff you need to know:
Here’s a flavour:
5. 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 been a key feature of the digital currency market. Just three days before Cboe’s product was slated to be introduced, bitcoin had one of its wildest sessions ever: On Coinbase’s GDAX exchange, prices zoomed up to almost $20,000 from $16,000 in only about 90 minutes, before crashing back down.
6. 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. In an open letter to the exchanges, the group questioned whether they would be able to adequately police market manipulation in bitcoin. The group said the exchanges should have sought more industry feedback on margin levels, trading limits and stress tests for the system before beginning trading. Cboe and CME are requiring traders to set aside an unusually large pile of cash to serve as collateral to back purchases.
The full article is online here.
My colleague Alex Hern has written a handy guide to other digital currencies which might (or might not!) rival bitcoin one day.
He insists that it must not be taken as investment advice. And this snippet explains exactly why:
PlexCoin, an innovative attempt to build “the next decentralised worldwide cryptocurrency”, has already raised $15m from backers, so you’d better move fast to – ah, hang on. No. The founder has just been sent to jail for two months for, among other things, falsehoods on the company’s fundraising documents, as well as taking investor money and using it to fund home improvement.....
Updated
Naeem Aslam of Think Markets reckons the launch of bitcoin futures has gone pretty smoothly - even though only a few thousand contracts have actually been sold so far today.
There are nearly 2900 contracts which have traded for the month of January which by no means can be classified as an anaemic volume but not exactly explosive either.
The thought that comes to mind is that the Bitcoin’s spot and futures markets seem stable for now and things are looking much calmer. The spread between the February and January contract has narrowed to $150 which at one point was as high as $2000.
This confirms that the volatility has eased off massively and in the coming days, we would not be shocked if the margin requirements are even lowered and the transaction cost reduced.
By its recent standards, bitcoin has been notably stable today.
The digital currency has been trading around at $16,300 mark for most of the day, a gain of around 10%.
The futures contract has been more volatile, though:
Looks as if #Bitcoin Options have tamed the Crypro-Beast, at least in the last 7hours. pic.twitter.com/g1DArsyjd0
— Holger Zschaepitz (@Schuldensuehner) December 11, 2017
“Of all the words of mice and men, the saddest are, “It might have been.”
The good news - I discovered I started a bitcoin wallet four years ago.
— Steve Goldstein (@MKTWgoldstein) December 11, 2017
The bad - I didn't put any bitcoin in it.
Still, it’s only money, eh?
Reuters’ Richard Beales has calculated that the volume of bitcoin future contracts actually traded today is quite modest.
The one-month future surged more than 20 percent from the open before trading below $18,000 on Monday morning – still a premium to the crypto-currency itself. Considering the price of bitcoin has risen two-thirds this month alone, that seems fairly sedate. Volume was roughly $50 million, Breakingviews calculates, less than 0.5 percent of actual bitcoin trading in the prior 24 hours, according to Coinmarketcap.com.
But the market could develop fast, as the CME exchange plans to rival CBOE by launching its own futures trading next Monday.
Beales adds:
Proponents reckon the entry of two big, regulated U.S. exchanges bolsters the legitimacy of bitcoin. It certainly broadens the universe of possible investors, and it invites the creation of new exchange-traded funds, which need a liquid benchmark to track. That would bring bitcoin exposure to retail investors.
Yet the Futures Industry Association, which represents clearing houses and big banks, is apprehensive about the light regulatory scrutiny so far. And making the contracts cash-settled means the exchanges – and their customers – can now ride the bitcoin bandwagon without touching the crypto-currency at all.
#Bitcoin futures set the scene for more gambling @richardbeales1 $BTC $XBT https://t.co/0YqgyXH6DT
— ReutersBreakingviews (@Breakingviews) December 11, 2017
Despite its bumpy start, the new bitcoin futures contract is still trading at a higher level than ‘spot’ bitcoin.
That shows the people trading this new futures contract expect bitcoin to keep rising in value over the next few weeks:
Bitcoin futures trading at a premium: https://t.co/MPi2VmcL3f pic.twitter.com/Fjf99otkQD
— Joe Rennison (@JARennison) December 11, 2017
However, it’s early days - many major banks are still wary of cryptocurrencies, and have resisted offering bitcoin futures to their own clients. Potential short-sellers (who want to bet against bitcoin) could still be lurking out there...
Wall Street has begun the new week calmly, with the Dow Jones industrial average rising by 25 points, or 0.1%, in early trading.
Some bitcoin supporters argue that digital currencies could replace gold as a store of value. Now there are signs that investors are selling their gold-backed securities to buy bitcoin instead....
Investors are dumping gold to buy bitcoin, says strategist via @TradingNation https://t.co/qPLyLIkaPY
— CNBC (@CNBC) December 11, 2017
Summary: Bitcoin futures trading underway
Time for a quick recap, for any US readers joining us (it just turned 7.30am in New York).
Bitcoin has taken another step towards the financial mainstream, with the launch of its first derivative contracts in Chicago.
But the move has intensified concerns that cryptocurrencies should be tightly controlled, in case they prove to be an unsustainable speculative bubble that ends in tears.
The first Bitcoin futures contracts, which will be settled in early 2018, jumped by 25% in early trading overnight -- triggering two circuit-breakers designed to calm volatile markets.
Although the number of futures contracts traded was relatively small, today’s debut seems to be going relatively smoothly. These futures contracts can be used to bet against bitcoin, but
Here’s the latest pricing, via Reuters:
- The one-month future is up 13% from the open at $17,450, around $1,000 higher than the “spot” bitcoin price - the price at which bitcoin is currently being bought and sold.
- The two-month contract is trading at $18,880, while the three-month contract is changing hands at $19,040.
Some analysts think the launch of bitcoin futures will legitimise the digital currency as an asset class -- it has already jumped by more than 1,500% this year.
But there is also concern that it is being fuelled by unsustainable speculation - and that small investors are being lured to buy bitcoins because they’ve heard it keeps going up.
UBS’s Paul Donovan recommends keeping well away, arguing that bitcoin is a bubble whose eventual puncturing can’t be predicted.
There are also signs that the political and economic establishment is becoming more concerned.
A senior ECB policymaker, Ewald Nowotny, has called for greater scrutiny of bitcoin to prevent it being used for moneylaundering. South Korea’s finance minister has also voiced concerns that bitcoin isn’t being regulated properly.
And yesterday, New Zealand’s central bank chief suggested bitcoin looked ‘remarkably’ like a bubble.
Updated
ECB's Nowotny voices fears of Bitcoin moneylaundering
A senior policymaker at the European Central Bank has called for bitcoin to be more tightly controlled, to avoid it being used by organised criminals.
Ewald Nowotny, who is also Austria’s top central banker, said that the recent jump in bitcoin’s value means tighter controls are needed.
Nowotny told a press conference in Vienna this morning:
“Simply because of the scale, it is certainly increasingly necessary to discuss whether and in what form regulations are needed here.
“A particular aspect that needs to be discussed ...is the question of how far the regulations on money laundering ...are relevant here.”
Updated
Chicago’s launch of the first bitcoin futures contract could pave the way for other financial products based on cryptocurrencies.
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.
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.
Starting the year at around $1,000, Bitcoin has soared this year to pass $16,000 in recent days. It is not a new asset class, and neither is it a functioning crypto-currency. It is purely a medium for speculation – a latter day tulip bulb.https://t.co/dgDTOBpKRS pic.twitter.com/oga7kkJZCl
— Woodford (@woodfordfunds) December 11, 2017
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.
Connor Campbell of City firm SpreadEx comments:
While investors go doolally for bitcoin futures, the more traditional markets were pretty dreary this Monday.
The jump in bitcoin futures today has calmed fears of a crash, says Craig Erlam of OANDA:
Bitcoin is back trading near record highs this morning, allaying fears for now that the ability to short would trigger a sell-off.
The price of a Bitcoin future has dropped back from its early high, but is still up around 17% today.
Associated Press has the details:
At 3:40 a.m. central time (0940 GMT) on Monday, the futures contract that expires in January was trading at $17,600.
It opened at 5 p.m. CST at $15,000 and climbed as high as $18,700 in its first day of trading, according to CBOE Global Markets.
The latest surge of excitement in the world of cryptocurrencies came over the weekend when the Chicago Board Options Exchange launched futures trading for bitcoin for the first time.
Futures contracts allow investors to agree to buy a certain amount of a commodity, bond or share at a specific price at a designated time in the future, hence the name. It means investors can bet on whether they believe a particular commodity – in this case bitcoin – will rise or fall by a specified future date. They are generally used in commodity markets to hedge against major fluctuations in prices, such as unexpected weather conditions hitting crops. But they are also well established in equity markets, with trading on individual companies and indices such as the FTSE 100 and S&P 500.
There are risks, mainly when investors use debt to finance their futures speculation and their bet goes the wrong way.
We have an early candidate for quote of the day, via Bloomberg.
“It is rare that you see something more volatile than bitcoin, but we found it: bitcoin futures,” said Zennon Kapron, managing director of Shanghai-based consulting firm Kapronasia.
Derivatives allow traders to take a negative view of bitcoin, and profit if its value falls.
But... they’re also a way for institutional investors to back digital currencies without having to get to grips with the technical intricacies (such as multiple exchanges, wallets, and occasional reports of bitcoins being stolen by cybercriminals).
Lee Wild, head of equity strategy at Interactive Investors, reckons that these new futures contracts could unleash a new flow of funds into bitcoin:
There’s never a dull moment where cryptocurrencies are involved. Introducing a bitcoin futures contract in the US gives professional investors and institutions an easier route in, and a fresh surge in value indicates pent up demand. Anything that adds to the asset’s accessibility and legitimacy and reduces security risk often associated with cryptos will improve its credentials as a tradeable asset and so grow the pool of potential investors.
Already, rapid and substantial gains on cryptocurrency exchanges have drawn in even seasoned investors, who are now earmarking some portfolio cash for bitcoin.
Opportunities to profit from such extreme market conditions, akin to the dotcom boom, are rare indeed, but inevitably come loaded with risk. However, the music may have much longer to play on this one than people think.
At around $16,400, Bitcoin has surged by over 1,500% since the start of 2017.
That means the combined value of every bitcoin currently in existence is around $274bn -- or more than most major companies (it overtook JP Morgan last week, for example).
So would a crash destabilise the financial markets? Not according to Capital Economics, who point out:
If the price of bitcoin fell to zero today, the paper losses would be equivalent to a 0.6% fall in US equity prices. As most investors have bought bitcoin at much lower prices, the relevant losses would arguably be smaller
But... a major correction could have a damaging knock-on effect if people have borrowed heavily to buy bitcoin, in the hope of making quick gains.
Our technology writer Alex Hern has been pondering bitcoin’s future, and tweets:
Trying to roadmap a future for bitcoin over the weekend and it feels like one under-analysed feature of it compared to most other assets is that a crash… doesn't really do anything.
— now, upon further reflection, tweting remains bad (@alexhern) December 11, 2017
Doesn't do anything to the asset itself, that is. There's basically no tier of crash that could stop bitcoin being traded, which means, with enough true believers, there's not much scope for it to ever be fully finished.
— now, upon further reflection, tweting remains bad (@alexhern) December 11, 2017
South Korea’s finance minister has revealed today that his government is reviewing whether bitcoin trading should be subjected to fresh regulation.
Kim Dong-yeon told reporters in Seoul that:
“We’re looking at its speculative nature, as well as the situation in other countries....
Bitcoin regulation has rocketed up the news agenda in recent weeks, as its price has surged. Last week, it emerged that the UK Treasury was examining whether laws against money laundering should be updated to specifically cover virtual currencies.
UBS: Ignore the bitcoin bubble
UBS analyst Paul Donovan has a word of caution for those thinking of betting against bitcoin.
Previous bubbles have lasted longer than critics have expected, Donovan points out. So unless you get your timing right, you could be crushed under the stampede of speculative money pushing an asset higher and higher.
Here’s how Donovan explains it:
Should investors bet against the bubble? That is high risk.
UBS believes cryptocurrencies are a bubble. However, being able to short a bubble does not make the bubble burst at once. Cash settled futures contracts on tulip bulbs began in Holland in 1636.
The tulip bubble did not burst until February 1637. Bubbles are by definition irrational. Predicting when a bubble will burst cannot use rational analysis. Ignoring a bubble is the best course of action.
Or, as John Maynard Keynes put it,
“The market can stay irrational longer than you can stay solvent.”
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:
“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.”
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).....
Ophir Gottlieb, chief executive officer of Los Angeles-based Capital Market Laboratories, believes bitcoin futures trading will take a few days to bed down.
Gottlieb says (via Reuters):
“Even if there is an institution or institutional-sized trader out there, they are going to want to make sure that the mechanics work first, just for the futures.
I think the excitement will come when the futures market is established. That can take a few days.”
But there’s already plenty of interest -- Bitcoin futures have surged by a quarter since trading began late last night.
Welcome to a new dimension: #Bitcoin futures getting off to a solid start in their first trading hours. Up 25% since opening. {XBTA Curncy <Go>} on @TheTerminal. pic.twitter.com/Xby74949t9
— Maxime Sbaihi (@MxSba) December 11, 2017
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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.
#Bitcoin Futures Start With a Bang as 25% Rally Triggers Haltshttps://t.co/NfLWzsqczc
— Peter Hoskins (@PeterHoskinsTV) December 11, 2017
via @business pic.twitter.com/pjjgHiLzJA
The agenda: Bitcoin futures have arrived!
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.
Dramatic debut: #Bitcoin Futures surge, driving spot price and triggering halts. pic.twitter.com/E4u1yuY3kU
— Holger Zschaepitz (@Schuldensuehner) December 11, 2017
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.”
But it could be a volatile day, as traders in London trudge through the snow and sleet to their desks.
There’s not much in the economic calendar. European stock markets are expected to rise this morning, with the FTSE 100 being called up around 31 points.
European Opening Calls:#FTSE 7424 +0.41%#DAX 13183 +0.23%#CAC 5412 +0.24%#MIB 22850 +0.33%#IBEX 10342 +0.20%
— IGSquawk (@IGSquawk) December 11, 2017
We’ll be tracking all the economic and financial news through the day.
Updated
