Bitcoin futures were launched on Monday. They suggested that traders expect that the cryptocurrency’s blistering price increases to slow in the upcoming months, even as the price soared past $17,000 to a fresh record high in the spot market.
Cboe Global Markets, the Chicago-based derivatives exchange, launched the futures late on Sunday. This event marked the first time that investors could get exposure to the bitcoin market via an extensive, regulated exchange.
On Sunday at 6 pm local time (23:00 GMT), the one-month bitcoin contract opened at $15,460. By the late afternoon on Monday, in New York, the bitcoin futures was trading at $18,650. This amount was roughly 8% higher than the bitcoin spot price of $16,900 on the Bitstamp exchange.
Earlier, Bitcoin reached a record high of $17,270.
The steep gains and the quick increase has attracted investors around the world, in addition to intense scrutiny from government regulators. This is the very opposite of what its creators intended when it initially launched bitcoin over eight years ago.
“The founder of bitcoin should be horrified to see it rise so suddenly, as any serious focus on it and its recent sudden move higher will soon put an end to its freedom,” said John Taylor Jr, the president and founder of Taylor Global Vision, a research firm in New York.
Taylor holds that based on his charts, bitcoin hasn’t peaked just yet. However, as soon as this upward move ends, it will crash.
Since that bitcoin has almost tripled in its value during the past month, and it was up over 15% on Monday alone, the pricing of the futures suggested that investors see price increases moderating.
Bitcoin futures were already offered on some of the unregulated cryptocurrency exchanges outside the United States. However, backers said that the debut on the US marker would confer the greater legitimacy on the volatile cryptocurrency and to encourage its more extensive use.
The CME Group is anticipated to launch its futures contract on Dec 17.
Even though there are hopes that the bitcoin futures will draw in new investors, most of the fund managers at larger asset managers and institutional investors said that bitcoin remains too volatile and it lacks the fundamentals necessary to give other assets value.
According to Robeco Chief Investment Officer, Lukas Daalder, “There is no place for bitcoin in a multi-asset portfolio due to the very high volatility.”
The two-month bitcoin futures contract was trading at $18,750. This is an 11% premium over the spot price, while the three-month contract was changing hands at $18,140, approximately a 12% premium.
While modest when compared with the 270% increase of bitcoin during the past three months and the 230% increase in the last two months, those levels are still an indication of large “short” positions betting against bitcoin.
Nick Spanos, the founder of the Bitcoin Center NYC, stated, “Anyone, especially those with a professional trading outfit, would be crazy to short sell this bull market. Yet, just because it does not happen on day one, does not mean it won’t happen in the future.”
Bitcoin increased more than 1,600% in 2017. It started out the year at less than $1,000.
Heading towards legitimisation
As of early afternoon trading in New York, 3,951 one-month contract had changed hand. In other words, around $73.1 million had been notionally traded. This is in comparison to the daily trading volumes of over $21.5 billion across all cryptocurrencies, according to Coinmarketcap, trade website.
There has been speculation that the launch of bitcoin futures would trigger more revolutions in the market. However, while volatile when compared to traditional currencies or assets, the increase on Monday was relatively calm for bitcoin.
There was a surge in Bitcoin of over 40% in 48 hours last week. Before it dropped 20% in the following 10 hours.
The futures are a cash-settled contract. They allow investors exposure without needing to hold ant of the cryptocurrency.
The futures are based on the auction price of bitcoin in USD on the Gemini Exchange. This exchange is both owned and operated by the virtual currency entrepreneurs and brothers, Tyler and Cameron Winklevoss.
Bitcoin was first set up in 2008, and it was the first digital currency that successfully used cryptography to keep transactions secure and hidden, essentially making traditional financial regulation difficult, if not impossible.
Central bankers and critics have been ringing alarm bells over the it and other risks like if the opaque market could be used for money laundering.
Someone who invested $1,000 in bitcoin at the beginning of 2013, would now be sitting on approximately $1.2 million.
There has been a lot of excitement ahead of the launch of the Cboe future gave an extra push to the cryptocurrency’s scorching run this year.
So far, the launch has received a mixed reception from big US banks and brokerages.
A number of the online brokerages, include TD Ameritrade Holding Corp and Charles Schwab Corp, did not allow immediate trade of the new futures.
On Thursday, Goldman Sachs Group Inc said that it intended to clear such trade for certain clients.