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Bitcoin futures have listed for the first time on the CBOE, and will shortly also list on the CME. Has this provided legitimacy to the digital asset? Or simply pulled the underground cryptocurrency out of the shadows?
Despite a significant rally in the bitcoin price, leading into the listing on the Chicago Board Options Exchange (CBOE) on Sunday night, trading was actually relatively underwhelming on the day. Less than 4000 contracts, or 2% of bitcoin's underlying trade volume quoted on the exchange, traded on day one. While day two saw less than 240 contracts change hands. These were only traded by 12 market participants on day one, and, even though this went up to 22 on day two, it’s undeniable that volumes are light. For one of the biggest headliners in the financial industry this year, that’s close to embarrassing.
This may change when the larger Chicago Mercantile Exchange (CME) listing takes place this weekend. However, from the evidence so far, it looks like nearly all the major clearing houses and institutions are still sat on the side lines waiting to see what happens. Due to this being a fundamentally new asset, it could be argued that many are simply waiting to see how it trades. Given that bitcoin is a volatile asset with very thin liquidity in the underlying market, this may not be a bad idea.
These listings, however, show that we are at the start of a brand new era for cryptocurrency. Never before have institutional investors been able to trade on a derived contract listing, cash settled against a benchmark auction, on exchanges which undergo the level of scrutiny and regulation which the CBOE and CME do. These new listings also allow people to access the price action and speculation of trading bitcoin without a need for any technological understanding or barrier to entry, such as researching a bitcoin wallet or transferring coins.
It also means that any trading activity will be closely watched by those wanting to try and push for an exchange traded fund (ETF) again. The legitimacy of these regulated exchanges quoting bitcoin means that a case can certainly be presented to the Securities and Exchange Commission (SEC), especially given a key criticism in the earlier rejection of an ETF or exchange traded note (ETN) was a lack of other regulated exchanges offering the asset. If the SEC then passes this request, and bitcoin investment is suddenly available to anyone who holds a share dealing account, that’s a whole new level of availability, the likes of which bitcoin has never seen.
For some though, no amount of regulated exchanges will give legitimacy to what bitcoin truly should be, a peer-to-peer electronic cash system. At the moment, transaction fees and time for confirmation are still an issue, and the scalability issues of the last two years haven’t gone away. Furthermore, for many, bitcoin still has no accountability, and has been instrumental in the illicit movement of cash across borders. Some also argue it fails as a currency because it doesn’t have the backing of a centralised authority or government. Another argument, however, could be that these people don’t understand that this is exactly the point.
There are rumours that ether is also going to get a listing. If this is the case then will there be a similar run up in the price as there was with bitcoin, or will it not react as much because it was second to the table? It will be an interesting one to watch, and the wider sentiment on the listings of bitcoin on the CBOE and CME should probably be taken into account. Keep your eyes peeled for any news on this as it could present a trading opportunity.