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Bitcoin Futures Go Live on the CBOE: What It Means for Bitcoin

The Story

Plans to launch bitcoin futures contracts on the Chicago Board Options Exchange have gone ahead as contracts began trading at 23:00 GMT on Sunday. The contracts will allow investors to bet on the future value of bitcoin. On the news bitcoin’s price rose significantly.

Why It’s Important

The contract allows individuals to bet on bitcoin’s price at a specified time in the future. Given bitcoin’s rise of over 1,000% this year, many investors are keen to get in on the action; CBOE’s  Bitcoin futures contract will enable investors to do so without actually owning the cryptocurrency. Additionally, it will be possible to short sell the digital asset for the first time, allowing investors to profit from price falls.

The move suggests the cryptocurrency is now becoming a mainstream investment, however, Bitcoin remains to be traded on unregulated markets. Consequently, its price is likely to remain volatile.

High Volatility

In an effort to ease volatility, the CBOE decided it would suspend trading for two minutes for price fluctuations of more than 10% and five minutes for more than 20%. In the contract’s first session, trading was stopped twice: once for two minutes and once for five minutes. While bitcoin remains traded on largely unregulated markets, it is questionable whether this policy will have any effect on the underlying cryptocurrency’s volatility.

The Future

Bloomberg’s Adam Haigh said the futures contracts was “an incremental step that allows Wall Street and indeed the professional finance community to make a bet either way on bitcoin.” The Chicago Mercantile Exchange is expected to list a similar contract next week, and Nasdaq has announced plans to host such trading too.

Last week Revolut’s decision to facilitate the trading of bitcoin and other cryptocurrencies could increase demand for the underlying asset.

Allegations that 1,000 people own 40% of all bitcoins in circulation suggest its price could be manipulated by a relatively small number of individuals.

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