By Brian Maher
This post Bitcoin Goes Legit appeared first on Daily Reckoning.
Bitcoin takes its next step to $50,000… $1 million… or 1 cent…
The Chicago Board Options Exchange (CBOE) opened bitcoin futures to trading this weekend.
The Chicago Mercantile Exchange (CME) plans to open its own bitcoin futures next Monday, Dec. 18.
Lest you are unaware of the subtle arts of finance, futures trading allows investors to wager on the future price of an asset.
Futures are agreements to buy and sell a certain product at a certain date — bitcoin in this case.
Many consider bitcoin’s acceptance on regulated exchanges an indication that bitcoin has passed beyond the shadowy fringe of crime, of terror, of vice… and into the mainstream light of day.
And so like a successful bank robber turning to respectable work, bitcoin drops the gun for the briefcase… exchanges the bandit’s mask for the businessman’s suit… and takes to life under Law.
Al Capone turns Al Hunt.
Greg Dwyer, head of business development at Bitcoin Mercantile Exchange:
Bitcoin now trades, pretty much, on unregulated markets. The fact that it’s going to start trading on [regulated exchanges] brings an air of legitimacy to the space because it’s going to bring in mainstream and professional investors and have them be more comfortable participating in the futures market, which is more regulated…
This is a big endorsement for the digital currency trading space. We could see more flows come into it and also, not only that, but futures help dampen and reduce the volatility of the price. So this could help stabilize bitcoin as an asset class.
Adds financial reporter Lucinda Shen, in Fortune:
With the CBOE, CME, Cantor Fitzgerald and other well-worn Wall Street names saying they plan to get in on the game, bitcoin believers are more convinced than ever that the cryptocurrency is here to stay…
Even more demand for bitcoin futures could also serve to push up bitcoin prices, as it would be a sign that some more established investors may be growing bullish in bitcoin.
How did bitcoin futures fare in their inaugural session?
They surged as much as 26%.
Traffic was so thick it caused delays and outages.
Heavy volume triggered two temporary trading halts to settle the horses.
“It is rare that you see something more volatile than bitcoin,” exclaims Zennon Kapron, managing director of consulting firm Kapronasia, “but we found it: bitcoin futures.”
Bitcoin volatility without futures was a thing in itself.
It swung $6,000 in one day alone last week.
And with a futures market?
Will we be treated to delirious combats of bitcoin bulls and bitcoin bears… with violent swings of hundreds of dollars per day… even thousands?
CBOE bitcoin futures carry a 44% margin rate — the amount a trader has to set aside as collateral for potential losses.
That 44% is much higher than standard futures contracts.
Bitcoin is notoriously volatile, after all.
What has the initial speculation indicated for bitcoin’s future?
Higher prices — at least through March.
The CBOE currently lists three bitcoin futures, expiring in January, February and March.
Bitcoin futures contracts maturing in …read more
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