The first day of bitcoin futures on Sunday was calm — relatively speaking — in the volatile world of bitcoin. The only thing that crashed was the website, and while trading stopped twice for a few minutes, it was due to automatic trading halts put in place when the price rose by 10% or more.
"It’s a slow start. I think that’s okay. Everything else with crypto is a manic feeding frenzy. It’s sometimes nice to ease into stuff and make sure it works," James Koutoulas, who runs the fund Typhon Capital Management and put $500,000 into bitcoin futures on Sunday, told BuzzFeed News.
The new securities are contracts to buy or sell bitcoin at a certain price at a future date on a futures exchange operated by Cboe Global Markets. These contracts allow investors to bet that the price of bitcoin will go up or down in the future without owning bitcoin itself.
Trading in the futures started Sunday evening and continued through Monday. The so-called price of bitcoin on the Cboe exchange was $17,086, while the price of a contract that expires in January was $18,360, suggesting that investors expect further rises in the price of bitcoin.
For those looking to bet that the price of bitcoin will crater soon, there's little they can do with the new futures contracts. Of the major brokers, only one, Interactive Brokers, is letting their customers trade the futures contracts and they are not allowing customers to bet that the price of the contracts will fall, known as shorting, thanks to the volatility of bitcoin in general. The company did about half of all the trades so far, an Interactive Brokers spokesperson said, and by midday today, there had been about $60 million worth of contracts traded.
Another futures market, operated by CME Group, will start trading bitcoin futures next week.
So far this year, the price of the digital currency has soared almost 1,700%, from $918 to $17,386 Monday afternoon on the Coinbase exchange, largely thanks to individuals chasing massive gains. Since there are few widely used applications for bitcoin, much of the new investment has been driven by speculators who are trying to profit on a quick price hike. About 40% of bitcoin is held by just 1,000 users, according to Bloomberg, which limits the amount of bitcoin available to buy, further driving up the price.
Major institutions have been wary of getting involved, Nick Colas, the cofounder of DataTrek Research, told BuzzFeed News, because of the security and reliability problems that haunt existing bitcoin exchanges where you can buy or sell and the digital wallets used to secure bitcoin holdings. With futures contracts, however, there's an actual security to trade that doesn't need to be secured against hackers.
"No one steals contracts the way they steal bitcoin, it gives you custody security through an established system," Colas said. "It opens up the market to more potential investors."
An earlier version of this post misstated the name of Typhon Capital Management.
Matthew Zeitlin is a business reporter for BuzzFeed News and is based in New York. Zeitlin reports on Wall Street and big banks.
Contact Matthew Zeitlin at firstname.lastname@example.org.
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