The long-awaited bitcoin futures contract officially debuted on CBOE Global Markets Sunday, sending BTC/USD sharply higher. Trade volumes were reportedly thin as CBOE’s website crashed immediately after the contract went live.
XBT Goes Live
CBOE’s futures contract, which trade under the symbol XBT, went live at 6:00 p.m. ET. Within minutes, bitcoin prices surged over $1,000, a sign that institutional money was pouring into the market. The BTC/USD exchange rate reached a session high of $15,811 before giving up gains later in the session. XBT traded at $16,000 soon after the contract went live, giving it a premium over the spot price.
At press time, BTC/USD was trading at $15,248, where it was little changed compared with the previous close.
Bitcoin’s total market capitalization is $260 billion. Trade volumes over the past 24 hours have exceeded $13.5 billion, according to CoinMarketCap. South Korean trading desks drove much of the daily turnover, with Bithumb accounting for roughly 16.5% of transactions. That’s equivalent to roughly $2.2 billion.
The Bitfinex exchange turned over 12% of total bitcoin transactions, which is equivalent to $1.6 billion, data showed. Coinbase’s GDAX exchange saw 6% of the volumes, or roughly $823 million. GDAX experienced technical difficulty last week as bitcoin prices crossed $19,000.
Although trade volume on the exchanges was robust, liquidity in the futures market was relatively thin.
Highly Speculative Instrument
It has been argued that bitcoin futures represent one of the highest forms of speculation in recent memory, given that they are cash settled and have no delivery requirement. This point was raised by Randy Mitterling in Twitter of all places in response to Nassim Nicholas Taleb, the world renown essayist, scholar and former trader. Mitterling, who serves as a Chief Investment Adviser, said:
“Bitcoin futures are cash settled. No delivery requirement. It’s just a sentiment indicator that could be completely wrong compared to the actual price. Truly the most highest form of speculation ever created.”
Taleb, himself a brilliant writer and probability theorist, had provided a series of insightful tweets about bitcoin in general and the new futures contract in particular. In a Sunday post, Taleb said the following:
“Note that Bitcoin has a limited number of natural sellers. The entire concept is very concave supply (it costs more and more to extract). The number of producers shrinks with time.”
In an earlier tweet, Taleb also said:
“No, there is NO way to properly short the bitcoin “bubble”. Any strategy that doesn’t entail options is nonergodic (subjected to blowup). Just as one couldn’t rule out 5K, then 10K, one can’t rule out 100K.”
The arrival of bitcoin futures probably ups the ante on other forms of institutional investments involving cryptocurrency. Some analysts speculate that bitcoin exchange-traded funds (ETFs) are the next logical step for a market growing more comfortable with the idea of cryptocurrency.
CBOE chief Edward Tilly recently told CoinDesk that the case for a bitcoin-linked ETF is stronger now that futures trading is under way. As such, CBOE may be prepared to submit a new proposal to the Securities and Exchange Commission (SEC) to allow bitcoin ETFs and exchange-traded notes (ETNs) to be traded.
Tyler and Cameron Winklevoss failed to launch their bitcoin ETF earlier this year after the SEC rejected their proposal on grounds that the Bats exchange would be unable to enter necessary surveillance-sharing agreements.
A bitcoin ETF would allow investors to buy and sell the asset class much like a stock transaction. For many, it is seen as a precursor to greater mainstream adoption of the world’s no. 1 digital currency.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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