The Chicago Board Options Exchange, a financial market regulated by the United States Securities and Exchange Commission, rolled out Bitcoin futures contracts on the night of Sunday, December 10 to coincide with the start of the global forex trading week.
As expected, these new contracts attracted considerable attention from traders eager to take long and short positions on the exchange value of this controversial digital currency, which has doubled in value quite a few times since 2016. The way these financial instruments work is very similar to the futures contracts on commodities such as oil and coffee; traders can speculate on the future price of Bitcoin against the dollar without actually buying the currency. Contracts are set for strike dates that range between one and three months in the future; these instruments have market values that allow them to be traded on a retail basis, and they also have an implied risk insofar as reaching their expiration date without execution.
Wall Street investment banking firms and hedge fund managers have been eagerly awaiting Bitcoin futures because the volatility of this cryptocurrency could be too much to handle for finance professionals managing clients’ money; moreover, traders who are used to shorting currency pairs such as the euro against the United States dollar would like to do the same to Bitcoin, a digital currency that many believe to be in a perpetual state of financial bubble.
A few interesting tidbits about the Bitcoin debut were reported by the Economic Times:
* The CBOE and Coinbase, the most popular cryptocurrency exchange platform, were not able to handle the massive web traffic caused by the debut of Bitcoin futures on Sunday night. Both websites crashed intermittently during th first few hours of trading.
* Shorting Bitcoin is not as popular as it was suggested prior to Sunday night; in fact, futures suggested that the digital currency could reach the mythical $20,000 mark y the end of the year. Nassim Nicholas Taleb, a philosophical hedge fund manager who has a knack for forecasting irrational market behavior, has advised against shorting Bitcoin at this time. Taleb believes that Bitcoin is a bubble that will not burst until it reaches a million dollars, which means that shorting the currency now may actually bolster demand.
* It is too early to tell if other cryptocurrencies will merit futures contracts, but this has not stopped analysts from talking about Ethereum futures for 2018.