Futures on world's leading cryptocurrency Bitcoin surged over 25 per cent during its debut session on Cboe Global Markets Inc.'s exchange. Expectations were exceeded with the initial volume, as stated by dealers, however, the exchange said all trading systems were normal. Traffic on Cboe's website was strong enough to cause delays and outages. Launch of futures traded on a regulated exchange is a turning point for Bitcoin as testing infrastructure will make it easier for legions of professional traders and mainstream investors to bet on the currency's rise or fall.
The first trading halt came about 2 ½ hours after the session began, while the second was triggered after four hours. Cboe imposes circuit breakers to curb volatility, halting transactions for two minutes if prices rise or fall 10 per cent, and for five minutes at 20 per cent. Trading will stop for at least five minutes if the rally extends to 30 per cent, Cboe said in a notice on its website. Naeem Aslam, chief market analyst at TF Global Markets in London said, “So far, looking at the contract volume traded, we believe that there is a decent demand and this is driving up the price of bitcoin. Prices are going higher because of the increase in confidence.”
CME Group Inc.'s exchange is set to start offering similar futures next week. Aslam said once the markets are better established, professional traders will arbitrage between the Cboe and CME futures and bitcoin itself. “In the future, traders will also start arbitraging and speculation will go in another higher gear.” Bitcoin futures expiring in January were priced at $17,780 as of 12.57 pm Hong Kong time, up from an opening level of $15,000.
The Chicago Board Options Exchange launched futures trading for the first time, for Bitcoin. 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. Investors can bet on whether they believe a particular commodity will rise or fall by a specified future date. Generally used in commodity markets to hedge against major fluctuations in prices, they are well-established in equity markets, with trading on individual companies and indices such as the FTSE 100 and S&P 500.
Joe Van Hecke, managing partner at Chicago-based Grace Hall Trading LLC said, “It is pretty easy to trade. I think you'll see a robust market as time plays out.”
RBI cautions investors
Bitcoin may be eyeing record $12,000, but the RBI is not impressed. India's central bank has cautioned bitcoin and other cryptocurrency enthusiasts that they face potential risks, including financial, legal and those related to customer protection. In a statement, the RBI said that it has not given any licence or authorization to any entity to operate schemes or deal with bitcoin or any virtual currency. The statement was issued in the wake of significant spurt in the valuation of virtual currencies and rapid growth in Initial Coin Offerings (ICOs), the RBI said. An ICO is an unregulated means by which funds are raised for a new cryptocurrency venture.
India is not the only country to express caution on bitcoins. Several countries have placed restrictions on them as well, including Russia, China, Iceland, Bangladesh, Sweden, Thailand and Vietnam. However, the US and the UK have a much more positive approach to bitcoins with several large US corporations accepting payments in bitcoins. While cryptocurrencies have not been legalised, there are no laws against investing or dealing in them. Even in China, which has cracked down on bitcoin exchanges, there is no legal bar on the cryptocurrency. One fear of regulators is that the virtual currency could be used as payment for illegal activities. Hackers who deployed the Wanna-Cry virus collected ransom in bitcoins from their victims to unlock computers.
