Closing summary: Bitcoin futures fall as CME trading begins
Time for a recap.
Bitcoin has made a subdued debut onto the world’s largest futures exchange, as a series of politicians and officials voiced concerns about the digital currency.
The Chicago Mercantile Exchange (CME) became the second exchange to offer bitcoin derivatives trading last night. And right now, bitcoin futures contracts which settle in 2018 have all fallen below their opening value.
The January 2018 contract, which initially spiked over $20,000, has now dropped back to $18,920 - having been originally priced at $19,500.
Contracts that mature in February, March and June are all in the red (although they’ve received little attention compared to the January option).
Futures contracts allow traders to bet against an asset, so today’s moves could suggest that bitcoin’s stunning rally is running out of steam. But, less than 1,000 contracts have been traded today (each one is worth 5 bitcoins).
The spot price of bitcoin has also dipped, currently down 1.6% at $18,640 - having hit a new alltime high near $20,000 last night.
CME’s launch of bitcoin futures was accompanied by a series of warnings. For example:
- Denmark’s top central banker said bitcoin was dangerous, and investors shouldn’t blame regulators if they lost their money.
- A senior Singaporean regulator said bitcoin had no intrinsic value
- France’s finance minister is pushing for the G20 to debate bitcoin regulation
- UBS’s chairmen, Axel Weber, said regulators should take a closer look at digital currencies
Analysts at ING also put the boot into bitcoin, saying it would eventually become just a ‘niche product’ again.
ING cited bitcoin’s volatility, scalability issues, and the shadow of regulation among several reasons why it would not replace traditional cash.
So those buyers who are hoping to sell their bitcoins at an even higher price in the future may be disappointed, they say:
We are enthusiastic about blockchain technology, and the current attention for Bitcoin could boost blockchain and digital currencies’ development. But as we have argued above, we doubt whether Bitcoin itself has what it takes to become a serious mainstream payment systems contender. Instead, we think it is more likely for Bitcoin to return to its roots as a niche payment system. A niche asset adopted worldwide could still have a substantial user base and hence value. It is therefore impossible to say whether the current Bitcoin market price is “too high” for a niche asset.
Then again, we join the crowd of analysts observing typical bubble characteristics: the idea of an asset that is new, revolutionary, almost magic – hard to understand, but let’s invest anyway because it will become huge. This idea is a form of “this time it’s different”-thinking. “Yes we know about all those previous bubbles that popped, but Bitcoin is really, really different.” We are not so sure.
That’s all for today. Thanks for reading and commenting. GW
Updated
Here’s our news story about the kerfuffle over Ikea’s tax affairs:
European markets close higher
European stock markets have closed at their highest level in almost six weeks, following Wall Street’s lead.
The German Dax led the charge, gaining 1.6%, with France’s CAC and the Italian FTSE MIB both gaining 1.33%.
The UK lagged behind, with the FTSE 100 finishing 46 points higher at 7,537, up 0.6%. The Footsie was held back by the pound, which has gained almost a cent today to $1.34 (which is bad for exporters).
Fiona Cincotta, senior market analyst at City Index, says the City is anticipating a final deal on US tax cuts soon.
Risk on sentiment is driving trading, as investor optimism over the US tax bill being passed sooner rather than later is lifting stocks.
The 2 wavering Senators, which could have thrown the vote in the Senate slim majority are now back on side and the markets are cheering.
France’s call for G20 leaders to debate bitcoin regulation may win the support of Germany.
Bloomberg reports:
In Berlin, a Finance Ministry spokesman said it was watching “bitcoin and other cryptocurrency developments closely,” adding that Germany’s financial supervisor Bafin has already warned of the risks of cryptocurrencies for consumers.
Greek PM tells banks to crack down on bad debts
In Greece leftist prime minister Alexis Tsipras has urged banks to do more to clamp down on big time debtors, citing the banking system’s record stock of non-performing loans.
Helena Smith reports from Athens:
In a no-holds barred speech Tsipras told leading bankers today that the time had come to crack down on big-time debtors and strategic defaulters as part of efforts to restore liquidity to Greece’s cash-strapped economy.
Those who had allowed bad debt to bust businesses, but done well themselves, had to be “chased,” he told bank representatives assembled at his office, adding:
“Liquidity needs to be restored to the economy … We need a responsible and effective way to deal with the problem of non-performing loans.”
By failing to effectively deal with NPLs – of which Greece has the highest amount in the EU – and provide funding for others, he said, banks were failing to properly support young Greeks in fulfilling their dreams.
Describing the role of banks as crucial, the leftist leader also called for the creation of an “observatory” that could advise the government on what banks could offer. With less than a year before the debt-stricken country’s third international bailout officially expires – ending, it is hoped, an era of international supervision – the government is keen to improve daily life.
On Friday the International Monetary Fund also cited bad debt as a major obstacle for Cypriot banks despite the island’s impressive economic recovery after its own crisis in 2013.
NPLs in Cypriot banks amount to 46% of loans -- after Greece the highest amount in the EU.
Updated
Maybe some of these bubble warnings are getting through to investors.
The bitcoin futures price is now moving south, as more traders take a position via CME’s new derivatives platform.
Almost 840 contracts for the January 2018 bitcoin contract have now been traded - with the price now falling to $19,010 [reminder, each contract is for five bitcoins].
US stock markets hit record highs as tax reform looms
Over in New York, the US stock markets has hit fresh record highs at the start of trading.
The Dow Jones industrial average has jumped by 138 points, or 0.5%, to 24,790 points. The broader S&P 500 index is also up, while rallying tech stocks have sent the Nasdaq higher too.
Investors are excited by the possibility that the US Congress might reach a final agreement on tax reforms. Those reforms have been heavily criticised by some experts, who fear it will drive up the US deficit and hand the richest Americans a tax cut.
So why is Wall Street celebrating? Because the bill will slash corporation tax, delivering a massive windfall to large corporations.
Analysts at FxPro say:
With the bill reducing corporation tax from 35% to 21%, there will be a windfall to US companies. With the possibility of share buy-backs and/or higher dividends by US Corporations, this will, in turn, increase the pace of interest rate hikes and see a stronger US dollar as a result.
But.... foreign exchange expert Kit Juckes of Societe Generale points out that bond traders aren’t impressed by the tax reforms:
The US Tax Bill will probably be voted on, pass and will turn up on the President’s desk this week . A significant boost to the economy? “Oh yes, it is” cries President Trump, who calls it ‘one of the great Christmas gifts’ to the middle class. “Oh no, it isn’t” answers the bond market, as 10yr Notes meander along at 2.37% this morning, and TIPS remain mid-range.
The bond market fell for the President’s policy promises this time last year and is resolutely unimpressed this time round. ‘Bah, Humbug’ sums it up (at the risk of mixing panto-metaphors).
Danish central bank governor: Bitcoin is dangerous
Denmark’s top central banker has now issued a stern warning to speculators to avoid bitcoin.
Lars Rohde, governor of the National Bank of Denmark, told local broadcaster DR that bitcoin was a dangerous bubble, comparing it to the tulip bulb mania of the 17th Century.
Rohde declared that putting money into bitcoin was basically gambling, warning:
“You have to stay away [from bitcoin]. It is dangerous.
Rohde also warned that people buying bitcoin shouldn’t blame regulators if they suffer losses when the market crashes.
He says:
“It is not a regulated market. It is not the responsibility of the authorities. It is the responsibility of the individual.”
Updated
So far so smooth for bitcoin today.....
Today's economic calendar is relatively light; Bitcoin trades "quietly" for now... currently at ~19001
— DailyFX Team Live (@DailyFXTeam) December 18, 2017
Don’t risk the scrum of present-hunters in the shops this lunchtime. Instead, pit your wits against our Christmas quiz....
Ikea faces EU inquiry into tax affairs
Breaking away from Bitcoin.... and the European Union has launched an investigation into whether Ikea is unfairly dodging tax.
The EU has opened an in-depth investigation into the Swedish furniture giant’s tax deals in the Netherlands, and whether it used a Dutch subsidiary to slash its tax bill.
EU’s anti-trust commissioner Margrethe Vestager is concerned that Ikea may have had an unfair advantage over rivals, by using various subsidiaries to reduce its tax burden.
She says:
“All companies, big or small, multinational or not, should pay their fair share of tax.
“Member states cannot let selected companies pay less tax by allowing them to artificially shift their profits elsewhere.”
The inquiry focuses on two tax rulings in the Netherlands. One allowed Inter Ikea, its Dutch branch, to pay a large licence fee to a Luxembourg-based division which paid less tax.
A second ruling involved a loan arrangement between Inter Ikea and a unit in Liechtenstein, which also moved shifted taxable revenue to a low tax jurisdiction.
#Stateaid: @EU_Commission opens in-depth investigation into the Netherlands' tax treatment of Inter IKEA https://t.co/utfDu0bUmS @EUinNL pic.twitter.com/0NOKK1jFuD
— Yizhou Ren (@yizhouren) December 18, 2017
Most of the EU’s previous tax inquiries have focused on US companies, as Apple and Amazon. This one is closer to home, points out Robin Bew of the Economist Intelligence Unit.
#EU investigating Ikea's tax arrangements should take a little of the sting from previous allegations that they were focusing primarily on #US firms
— Robin Bew (@RobinBew) December 18, 2017
We should note that CME’s new bitcoin futures contracts actually covers five units of the digital currency.
So the 681 contracts traded so far today have a notional value of 3,405 bitcoins -- or around $65m.
Singapore sound alarm over bitcoin
Singapore’s financial watchdog has joined the chorus of concerns over cryptocurrencies.
Sopnendu Mohanty, the top fintech official at Singapore’s monetary authority (MAS), has warned that people who have invested in bitcoin will come a cropper when they try to withdraw their funds.
The Telegraph’s Ambrose Evans-Pritchard has the story:
Bitcoin has no fundamental value and is likely to end in tears once speculators discover how hard it can be to extricate their cash, Singapore’s financial watchdog has warned.
Sopnendu Mohanty, Fintech chief for Singapore’s monetary authority (MAS), said there was a crucial difference between Bitcoin and rival crypto-currency Ethereum, but it is far from clear whether either improves day-to-day transactions or has much potential as a tool for central banking.
“Bitcoin has no natural intrinsic value. Can you buy a house with it? Can you use it for daily interactions? It may be valued at $18,000 right now but what I want to know is how you convert it into fiat currency and realize that value. The risk comes at the moment of conversion,” he told the Daily Telegraph....
More here: Singapore’s Fintech chief warns on Bitcoin delusion
The bitcoin futures price is also rallying.
The January contract has now jumped back to $19,645, over the opening price of $19,500, and ahead of today’s ‘spot price’.
But the trading volume is still quite modest, with exactly 666 contracts so far on the Chicago Mercantile Exchange’s new offering.
Other longer-dated bitcoin futures contracts are also available, but are being ignored - just seven have been traded so far.
I guess that betting where bitcoin’s price in June 2018 is too risky even for seasoned traders...
Bitcoin is creeping higher again, as early bird traders head to their desks in America.
The spot price has jumped back over $19,000, erasing this morning’s small dip as CME’s futures trading got under way.
Swissquote Bank, an online bank based in Switzerland, has a more positive view of bitcoin than UBS.
It has been letting customers buy bitcoin since July, and today it added four other digital currencies - Bitcoin Cash, Ether, Litecoin and Ripple
Analyst Yann Quelenn argues that bitcoin’s scarcity (there can only ever be 21 million coins, with 16m discovered so far) will help push its price higher.
Quelenn says:
Who would have thought at the start of 2017 that Bitcoin would increase 20-fold? That was simply unpredictable. The introduction of futures trading has driven up prices. Nonetheless, it is also artificially increasing supply and weighing on prices. In the short-run, Bitcoin is likely to reach US$ 25,000. A correction is due at some point, but within the next few years it should easily reach US$ 100,000.
By the way: Bitcoin is far from perfect, with high transaction fees and low scalability. And it is expensive, but it is even more scarce.
UK factory order books at 30-year high
Newsflash: British manufacturers are ending 2017 on a high, with the strongest order books in 30 years.
That’s according to the CBI’s monthly healthcheck on UK factories, which found that exports and total output are both strong.
The survey found that:
- 28% of manufacturers reported total order books to be above normal, and 11% said they were below normal, giving a balance of +17% (joint highest with last month and August 1988)
- 28% of firms said their export order books were above normal, and 12% said they were below normal, giving a balance of +16% well above the long-run average of -18%
- 42% of businesses said the volume of output over the past three months was up, and 11% said it was down, giving a rounded balance of +30% above the long-run average of +4%
Manufacturing output grew at a robust pace in the three months to December, maintaining the momentum reported in the quarter to November. #CBI_ITS https://t.co/dE2FE2ahXD pic.twitter.com/heYKitC2vs
— CBI Economics (@CBI_Economics) December 18, 2017
Order books remain, by a small margin, stronger than at any time since August 1988. #CBI_ITS https://t.co/dE2FE2ahXD pic.twitter.com/GZzSt9uLUO
— CBI Economics (@CBI_Economics) December 18, 2017
The slump in the pound after last year’s Brexit vote should have made UK exports more competitive. But...it also means that imported raw materials are more expensive. That is likely to translate into higher prices in the shops in the months ahead.
Correction corner: I daftly called UBS a German bank earlier. It’s Swiss, of course (the name dates back to Union Bank of Switzerland)
Thanks to the readers who kindly flagged it up.
Update: Bitcoin is still hovering around the $18,800 mark, having dropped back from nearly $20,000 overnight.
The future price of Bitcoin is also quite stable on CME’s platform. Just over 650 contracts for bitcoin’s value in January 2018 have now been traded since last night. Right now, that contract is priced at $19,330, down from the opening price of $19,500.
Jasper Lawler of CMC Markets says the introduction of futures contracts is having a slight negative impact on the bitcoin price.
This negative impact from CME futures on Bitcoin is likely temporary, just like it was with the launch of CBOE futures last week. Until the bulk of the volume of trading is done through futures, spot prices should dictate the futures price, not vice versa.
Bitcoin is a rubbish investment, literally!
An email just popped into my inbox, announcing that you can use digital currencies to pay to have your company’s waste and recycling hauled away.
York-based BusinessWaste.co.uk will now accept bitcoin, litecoin and ethereum - along with dusty old cash and credit cards.
They insist it isn’t a publicity stunt (perish the very thought!), but a natural response to customer demand...
Business Waste spokesperson Mark Hall argues:
“Individuals and companies are trading in Bitcoin and other virtual currencies all over the world.
So of course we’re going to accept it from our customers.”
Here’s some Twitter reaction:
Press release: 'Pay For Your Bin Collections With Bitcoin'
— Felicity Hannah (@FelicityHannah) December 18, 2017
I mean, I know bin services are getting pricier but wow.
When you receive an email headed "Pay For Your Bin Collections With Bitcoin", you know it's nearly all over.
— Brian Groom (@GroomB) December 18, 2017
Updated
ING: Bitcoin will return to its niche status
Dutch Bank ING shares some of Axel Weber’s concerns over bitcoin.
In a new research note, ING argue that the digital currency will eventually return to being a “niche product for a select group of enthusiasts”, rather than a revolutionary new currency that reshapes the financial system.
Why? They argue that there are several impediments build into bitcoin, which will prevent it becoming the peer-to-peer electronic cash system envisioned by creator Satoshi Nakamoto.
For example:
- Regulation: Its decentralised nature makes it difficult to regulate. Governments and regulators may never come to like decentralised financial networks at all. A negative event, such as a price crash followed by public outcry, could trigger a regulatory crackdown.
- Intermediaries: Working without intermediaries is cherished by a core group of Bitcoin enthusiasts. The mass audience however dislikes having no rights, no recourse, no guarantees, no legal coverage, nothing. They just want secure, reliable and hassle-free access to their money, and a help desk to call when they lose their password.
- Scalability: The Bitcoin network is currently clogged and the current level of transaction fees (average $8 in November) makes it very unattractive for small payments.
- Volatility: while the value of “ordinary” money is managed by the central bank, Bitcoin’s supply is fixed and its value depends greatly on demand. This makes it inherently volatile.
- Energy use: in the case of Bitcoin, the price of taking out intermediaries is very high electricity consumption.
- Governance: Blockchain is great at rule enforcement, but does not provide at all for rule-setting. This lack of governance makes implementing innovations slow and painful. Moreover, power may get concentrated in the hands of a few (miners, in the case of Bitcoin).
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#Bitcoin is steady after touching new high Sunday of $19,757 as futures trading started on CME. Now at $18,813
— DailyFX Team Live (@DailyFXTeam) December 18, 2017
France wants G20 to talk bitcoin regulation
France’s finance minister, Brune Le Maire, has also waded into the bitcoin debate.
He wants the G20 group of leading advanced economies to debate the whole issue of digital currencies next speing.
Speaking on French news channel LCI, Le Maire says:
“I am going to propose to the next G20 president, Argentina, that at the G20 summit in April we have a discussion all together on the question of bitcoin.” Le Maire told French news channel LCI.
“There is evidently a risk of speculation. We need to consider and examine this and see how (...) with all the other G20 members we can regulate bitcoin.”
French finance minister calls for bitcoin regulation debate at G20 | Article [AMP] | Reuters https://t.co/IZy63vFHSK
— Mike Butcher (@mikebutcher) December 18, 2017
But..... can the G20 really do much about bitcoin? They can certainly try to clamp down on criminals who use anonymous decentralised currencies to launder money. But beyond that, it gets tricky. Bitcoin isn’t an official currency, so it doesn’t fall under the control of a central bank.
So should it be regulated as a security - a financial asset? Possibly. Back in July, America’s Security and Exchange Commission ruled that Initial Coin Offerings – where a new digital currency is launched and sold to investors – meet some of the criteria. That opens up to prospect of ICOs being scrutinised by regulators. But even that wouldn’t extend to interfering with day-to-day prices.
The FT have published a good take on the battle between the two rival Chicago-based financial exchanges to offer bitcoin derivatives.
Here’s a flavour:
The bitcoin futures race began in earnest on Sunday as exchange operator CME Group challenged another Chicago exchange that had launched the first digital-currency futures a week before.
In the first three hours of trading, nearly $50m in bitcoin futures changed hands on CME, the world’s biggest exchange operator by market value.
Rival Cboe Global Markets had hosted $30m in bitcoin futures trading over the same time. The two Chicago-based exchanges created competing bitcoin futures contracts as prices flew higher and professional investors sought exposure inside the walls of a regulated exchange.
Success in launching futures contracts could confer legitimacy to bitcoin and add a revenue stream for Cboe and CME.
Investors will closely watch how CME’s contract fares because the more than 100-year-old exchange runs several of the world’s most-liquid futures markets in interest rates, currencies, equity indices and commodities. Futures listings tend to be a winner-takes-all business.
More here: Duelling bitcoin futures go head-to-head as CME launches contract
Why bitcoin futures matter
The launch of bitcoin futures contracts has two significant implications.
Firstly, it makes it easier for institutional investors to take a position in bitcoin. They don’t have to actually buy and sell digital currencies, let alone mine them by cracking complicated maths problems.
Instead, they just take a position and profit, or lose money, when the contract expires, based on CME’s index of bitcoin prices across several exchanges.
Secondly, it allows people to bet against bitcoin. Until now, there hasn’t really been any way of wagering that digital currencies are overpriced. Derivatives contracts allow a trader to bet that bitcoin will be worth less than the current price in, say, mid-January (or whenever a particular futures contract expires).
That should mean that digital currencies find their ‘true’ value, stripping out some of the recent volatility.
That’s the theory, anyway.
It may not go as smoothy in practice, as Lee Wild of interactive investor explains:
Introducing futures contracts in the US was meant to give short-sellers access to the market and improve liquidity, but availability is still fairly restricted. The introduction of bitcoin futures on the Chicago Mercantile Exchange over the weekend may help, but it will take time.
Until it becomes easier to sell short, buying dries up, or there are tech issues or a major hack, bitcoin will keep passing milestones with alarming regularity. Right now, there’s a long queue of investors, both amateur and professional, still waiting for a ride. This bubble is not bursting yet.”
CNN Money reckons the bitcoin bandwagon “just keeps rolling on”, with the launch of futures trading on CME.
They say:
The involvement of top financial institutions in the bitcoin market underscores its growing mainstream acceptance even as government officials, business leaders and economists continue to warn people against investing in it.
The CME launch “adds considerable legitimacy” to bitcoin trading, said Shane Chanel, an adviser at Australian investment services firm ASR Wealth Advisers.
The bitcoin bandwagon just keeps rolling on. https://t.co/nqVVAaIyML
— CNNMoney (@CNNMoney) December 18, 2017
UBS chairman: Bitcoin isn't valuable or sustainable
Swiss bank UBS has warned anyone keen to invest in bitcoin that they risk losing their money.
UBS chairman Axel Weber fears that the digital currency’s recent gains are unsustainable, and says investors and speculators should keep away.
Speaking to Swiss newspaper NZZ, he says:
“We as a bank have consciously warned against this product because we do not assess it to be valuable or sustainable.”
Weber argues that financial regulators should now step in, given the surge of interest in bitcoin recently. Otherwise, he fears smaller investors could be wiped out by bitcoin’s volatility.
As Weber puts it:
“As soon as small investors invest, the regulators are required....
I would welcome an discussion with regulators about cryptocurrencies.
There are already signs that governments are taking more interest in bitcoin, with European officials concerned that it is being used for moneylaundering.
Updated
The agenda: Bitcoin futures trading begins
Good morning and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The future of finance, or an unsustainable speculative bubble that will cost investors their shirts? The jury is still out on Bitcoin.
What we do know, though, is that the cryptocurrency has crossed another barrier -- the world’s biggest exchange is now offering bitcoin futures.
From today, the Chicago Mercantile Exchange is allowing investors to wager whether they think bitcoin will rise or fall in value in the months ahead (after seeing it surge around 2,000% this year).
CME is the second exchange to offer bitcoin futures – rival Cboe stole a march last week – and this move shows how digital currencies have pushed their way into the mainstream.
The launch has gone fairly smoothly so far. The ‘spot price’ of bitcoin initially surged to almost $20,000, a new record, before dipping back towards $18,800 by 8am London time.
Such volatility shows why sceptics argue that bitcoin is hardly a reliable store of value, mind you.
Over on CME, the January 2018 futures price has actually dropped a little in the first few hours of trading.
It was priced at $19,500, but is now changing hands at $19,370. That suggests that investors expect bitcoin to broadly hold its value over the next month.
Spencer Bogart, partner at Blockchain Capital LLC, told Reuters that many traders are approaching bitcoin cautiously:
“We saw a nice open on light volume, but pretty uneventful so far,”
“This is a brand-new asset class and I think perhaps a lot of investors want to sit back and see how this plays out before dipping their toes in this market.”
Also coming up today...
Stock markets are expected to rise, as investors salivate over the prospect of US tax reforms being signed off by Donald Trump by the end of this week.
European Opening Calls:#FTSE 7503 +0.16%#DAX 13188 +0.65%#CAC 5386 +0.69%#MIB 22214 +0.54%#IBEX 10210 +0.59%
— IGSquawk (@IGSquawk) December 18, 2017
New eurozone inflation figures are due this morning, and likely to show prices rose by just 1.5% in the last 12 months.
In the UK, the CBI publishes its latest industrial trends survey, showing how British factories fared last month.
The agenda
- 10am GMT: Eurozone consumer price inflation figures for November
- 11am GMT: CBI industrial trends for November
