CMA Awards 2018
Bitcoin Goes Mainstream: Futures Rise as Cryptocurrency Hits Major U.S. Exchange
Also, what the heck is it? A primer below...
The first-ever bitcoin future jumped after it began trading Sunday as the increasingly popular virtual currency made its debut on a major U.S. exchange.
The futures contract that expires in January surged more than $3,000 to $18,580 eight hours after trading launched on the Chicago Board Options Exchange. The contract opened at $15,000, according to data from the CBOE.
The CBOE futures don’t involve actual bitcoin. They’re securities that will track the price of bitcoin on Gemini, one of the larger bitcoin exchanges.
The start of trading at 5 p.m. CST overwhelmed the CBOE 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,” the exchange said in a statement. But it said the trading in the futures had not been disrupted.
Another large futures exchange, the Chicago Mercantile Exchange, will start trading its own futures on Dec. 18 but will use a composite of several bitcoin prices across a handful of exchanges.
The price of a bitcoin has soared since beginning the year below $1,000, hitting a peak of more than $16,858 Dec. 7 on the bitcoin exchange Coindesk. As of 1:15 a.m. CST, it was at $16,733.49 on Coindesk.
Futures are a type of contract in which a buyer and a seller agree on a price for a particular item to be delivered on a certain date in the future, hence the name. Futures are available for nearly every type of security but are most famously used in commodities such as wheat, soy, gold, oil, cocoa and, as dramatized in the Eddie Murphy and Dan Aykroyd movie “Trading Places,” concentrated frozen orange juice.
The futures signal greater mainstream acceptance of bitcoin but also open up bitcoin to additional market forces. The futures will allow investors to bet that bitcoin’s price will go down — a practice known as shorting — which currently is very difficult to do.
There have been other attempts to bring bitcoin investing into the mainstream. Tyler and Cameron Winklevoss, twin brothers who own large amounts of bitcoin, tried to create an exchange-traded fund based on bitcoin, but federal regulators denied their application.
How much actual investor interest there will be in these bitcoin futures is still up in the air. Many larger Wall Street brokerages and clearinghouses, including Goldman Sachs and JPMorgan Chase, are either not allowing customers to trade bitcoin futures or only allowing select clients to do so. Other brokerages are putting restrictions on the amount of margin a trader can use in bitcoin futures, or putting limits on the amount that can be purchased.
The digital currency has had more than its fair share of critics on Wall Street. JPMorgan Chase CEO Jamie Dimon has called bitcoin “a fraud.” Thomas Peterffy, chairman of the broker-dealer Interactive Brokers Group, expressed deep concerns about the trading of bitcoin futures last month, saying “there is no fundamental basis for valuation of Bitcoin and other cryptocurrencies, and they may assume any price from one day to the next.”
Peterffy noted that if bitcoin futures were trading at that time, under the CBOE’s rules those futures likely would experience repeated trading halts because 10 percent or 20 percent moves in bitcoin prices have not been unusual in recent months.
Bitcoin is the world’s most popular virtual currency. Such currencies are not tied to a bank or government and allow users to spend money anonymously. They are basically lines of computer code that are digitally signed each time they are traded.
A debate is raging on the merits of such currencies. Some say they serve merely to facilitate money laundering and illicit, anonymous payments. Others say they can be helpful methods of payment, such as in crisis situations where national currencies have collapsed.
WHAT IS A BITCOIN? Bitcoin is a digital currency that’s not tied to any bank or government. Like cash, it lets users spend or receive money anonymously, or mostly so; like other online payment services, it also lets them do so over the internet. There are several other virtual currencies, such as ethereum, but bitcoin is the most popular.
Bitcoins are basically lines of computer code that are digitally signed each time they travel from one owner to the next. Transactions can be made anonymously, making the currency popular with libertarians as well as tech enthusiasts, speculators — and criminals.
HOW IS A BITCOIN MINED? Tech-savvy users called “miners” use their computers to make complex calculations that verify transactions in bitcoins. This so-called blockchain is a global running tally of every bitcoin transaction. The miners receive bitcoins in exchange according to a set of established rules. In this way, the bitcoin network harnesses individuals’ greed for the collective good.
NiceHash, the company that got hacked, made a business from matching people with spare computing power to those wanting to mine bitcoin.
HOW ARE BITCOINS KEPT SECURE? Because the tally of bitcoin transactions, or blockchain, is verified constantly by a network of miners, rogues cannot spend the same bitcoin twice. As long as miners keep the blockchain secure, counterfeiting shouldn’t be an issue.
HOW DID BITCOIN COME TO BE? It’s a mystery. Bitcoin was launched in 2009 by a person or group of people operating under the name Satoshi Nakamoto. Bitcoin was then adopted by a small clutch of enthusiasts. Nakamoto dropped off the map as bitcoin began to attract widespread attention. But proponents say that doesn’t matter: The currency obeys its own internal logic.