Bitcoin Suddenly Skyrockets as Futures Launch; 5 Things to Watch - Ba
Bitcoin itself, which had been trending down prior to the launch, shot higher after the start of futures trading to about $16,000 just after 6 p.m. from $14,700 a few minutes earlier, as measured on the heavily traded GDAX exchange. It gave back some of those gains about 10 minutes later, to trade at $15,500.
Cboe sent us the following statement about the issues with the website: "Due to heavy traffic on our website, visitors to www.cboe.com may find that it is performing slower than usual and may at times be temporarily unavailable. All trading systems are operating normally."
This will either signal the moment that Bitcoin arrived in the big leagues, or the moment it was co-opted by Wall Street suits. Or both.
The cash-settled futures (you get cash at the end of the contract, not Bitcoin) trade under the symbol XBT. You can follow along on the Cboe site here.
Here are 5 things to watch.
1. The price. I mean, obviously everyone will be watching the price. But in this case, there are some very peculiar dynamics to keep an eye on. Importantly, how will the futures contract differ from the price of Bitcoin itself? That differential could show the split in how Wall Street traders view Bitcoin versus how retail investors view it. Will a sharp change in the futures price impact the current price, and vice versa? Traders may want to have two price windows open simultaneously.
Remember, Bitcoin itself trades 24 hours a day 7 days a week, all the time and all over the world. Bitcoin futures, on the other hand, will trade "nearly" 24 hours a day, 5 days a week, according to Cboe. Will the fact that futures trade only five days a week put futures traders at a disadvantage to people who trade Bitcoin directly? What if the Bitcoin price plunges because of some government decision or other issue during a period when Bitcoin futures aren’t trading?
2. The volume. How many dollars worth of Bitcoin futures will trade every day? Will it become a liquid market, or will traders instead choose to trade Bitcoin directly? Big Wall Street firms will only get involved if the market is large enough.
3. Short interest. Futures will make it much easier to short Bitcoin. Will anyone go for it? Yes, there’s ample evidence that Bitcoin is a mania and many of the people investing don’t understand it. But shorting a product with this much momentum will be expensive. Losses can pile up fast with an asset that sometimes jumps 20% a day. and the fee to short could be as much as 100% of the cost of the short itself, says S3 Partners (that means a $10,000 short could require an annual fee of $10,000, as my colleague Crystal Kim pointed out).
4. Market-makers. Who on Wall Street is willing to get into Bitcoin? Cboe did not tell us in a recent interview who would be making markets in Bitcoin. So far, no major banks appear willing to take the plunge, but that could change as time goes on. For now, high-speed traders in Chicago may be among the early market-makers.
5. Glitches and volatility. This is unprecedented and risky business. And like anything risky, people secretly want to see something wild happen. Will the price move so quickly that it trips circuit breakers that force trading to pause on the first day? Will adding leverage to a product like Bitcoin create a dangerous cocktail? Cboe is adding special safeguards for these futures, including initial margin levels of 40% (you have to put down 40% of your bet in cash before trading), but that doesn’t mean there won’t be fireworks.