Bitcoin futures surge over 20% on debut

Bitcoin's critics have raised questions over its price surge and other risks like whether the opaque market can be used for money laundering.
Bitcoin's critics have raised questions over its price surge and other risks like whether the opaque market can be used for money laundering.PHOTO: REUTERS

Backers hope rise will lead to cryptocurrency being legitimate but critics warn of bubble and price collapse

NEW YORK • Bitcoin futures jumped more than 20 per cent in their eagerly-awaited US debut, which backers hope will encourage wider use and legitimacy for the world's largest cryptocurrency.

Its critics, however, warn of the risk of a bubble and price collapse.

Sunday night's debut may have caused an early outage of the Chicago-based CBOE Global Markets' website. Owing to heavy traffic, the exchange said the site "may be temporarily unavailable".

The one-month bitcoin contract opened trade at 2300 GMT at US$15,460, dipped and then rose to a high of US$18,700. As of 0630 GMT, it was up 17 per cent from the open at US$18,140, with 2,368 contracts traded.

On the Luxembourg-based Bitstamp, bitcoin prices surged 9.6 per cent to US$16,100. It has risen more than 1,400 per cent so far this year, and gains in the past month have been swift.

Experts worry that the risks associated with the currency's Wild West-like nature could overshadow the futures debut. Bitcoin tumbled 20 per cent in 10 hours last Friday.

"Even if there is an institution or institutional-sized trader out there, they are going to want to make sure the mechanics work first, just for the futures," said Mr Ophir Gottlieb, chief executive of Capital Market Laboratories in Los Angeles. "The excitement will come when the futures market is established. That can take a few days."

The futures are contracts based on the auction price of bitcoin in US dollars on the Gemini Exchange and settled in cash.

They were quoted at US$16,355 on the exchange, which is owned and operated by virtual currency entrepreneurs and brothers Cameron and Tyler Winklevoss.

Market participants said the launch of the futures contract would not necessarily reduce bitcoin volatility.

"There are no ways to arbitrage between the market and other exchanges and CBOE cannot settle bitcoin as far as I know," said Mr Leonhard Weese, president of the Bitcoin Association of Hong Kong, referring to sharp differences in bitcoin prices worldwide.

"Regular bitcoin traders don't have access to it, and the trading desks that use the futures market don't have access to bitcoin."

Bitcoin, set up in 2008, is the first digital currency to successfully use cryptography to keep transactions secure and hidden, making traditional financial regulation difficult, if not impossible.

Central bankers and critics of the cryptocurrency have been ringing the alarm bells over the price surge and other risks like whether the opaque market can be used for money laundering.

"It looks remarkably like a bubble forming to me," the Reserve Bank of New Zealand's acting governor Grant Spencer said on Sunday. "Over the centuries, we've seen bubbles and this appears to be a bit of a classic case."

REUTERS

A version of this article appeared in the print edition of The Straits Times on December 12, 2017, with the headline 'Bitcoin futures surge over 20% on debut'. Print Edition | Subscribe