Fresh YORK (Reuters) – Bitcoin ventilatoren are salivating overheen the potential of long-awaited legitimacy for the cyptocurrency when futures trading launches this weekend, but experts worry the risks associated with bitcoin&rsquo,s Wild West-like nature could overshadow the primicia.
The very first bitcoin future trades kick off Sunday at 6 p.m. EST (2300 GMT) on Cboe Mundial Markets Inc&rsquo,s ( CBOE.O ) Cboe Futures Exchange, followed a week straks by CME Group Inc&rsquo,s ( CME.O ) CME.
Nasdaq Inc ( NDAQ.O ) plans to get into the mix next year, Reuters reported.
While Cboe, CME and Nasdaq suggest stringently policed trading environments, the underlying bitcoin market is riddled with crypto-exchanges lacking even basic oversight.
That has stoked fears of market manipulation, inaccurate pricing and systemic risk to clearing houses.
&ldquo,I&rsquo,m kleuter of taken aback by what&rsquo,s happened ter the last three months,&rdquo, said Richard Johnson, an analyst at Greenwich Associates who wields digital currencies and considers himself a bitcoin bull. &ldquo,I&rsquo,m worried things are moving a bit too quickly.&rdquo,
Some of the world&rsquo,s largest brokers on Thursday voiced concerns about the process through which bitcoin futures had come to market, noting that market participants should have bot better consulted on issues such spil margin levels and trading boundaries.
Through an open letterteken to the U.S. derivatives watchdog from the Futures Industry Association, the brokers said more safeguards are needed to protect against bitcoin&rsquo,s high volatility and the risk of manipulation te the underlying spot market.
&ldquo,Wij remain apprehensive with the lack of transparency and regulation of the underlying reference products on which thesis futures contracts are based,&rdquo, the FIA letterteken said.
Bitcoin&rsquo,s more than 10-fold upsurge this year has led to warnings of a bubble by the likes of JPMorgan Pursue & Co ( JPM.N ) Chief Executive Officer Jamie Dimon, who called it &ldquo,a fraud&rdquo, that will eventually suck up. Others, like Wall Street adviser Tom Lee, expect bitcoin to top $100,000.
On Thursday, its hypervolatility wasgoed on utter display spil it broke through $15,000 for the very first time on the Luxembourg-based Bitstamp exchange BTC=BTSP, leaping more than 12 procent from the previous day.. Since August 2011, bitcoin has averaged a daily price switch of almost Trio procent, up or down, compared with a daily media switch te the U.S. dollar-euro cross rate EUR= of less than 0.Five procent since the euro’s iniciación ter 1999.
&ldquo,Maybe it&rsquo,s just the most unique market that is going to proceed to go up forever and everzwijn and so everybody on the long side is going to make money and it&rsquo,s a good thing, but I&rsquo,ve bot around long enough to know that&rsquo,s not going to work out so well,&rdquo, said John Lothian, CEO of advisory stiff John J Lothian and Company.
Spil a imaginario currency, bitcoin can be used to budge money around the world without the need for a central authority, such spil a bankgebouw or government, which is a double-edged sword, said Steve Grob, director of group strategy at Fidessa.
&ldquo,There is no backstop. If abruptly tomorrow everyone determined bitcoin wasgoed worthless, it would be worthless, and I&rsquo,m not sure whether people have truly thought that one through,&rdquo, he said.
Still, fresh entrants, from retail investors to high-frequency traders, have piled into bitcoin. U.S.-based crypto-exchange Coinbase said it added 100,000 accounts te the three days around the U.S. Thanksgiving holiday, for 13.1 million overall.
If the futures market were to exceed the size of the spot market, with current daily trading volume of around $6 billion vanaf day, the underlying price could be more susceptible to manipulation, said Kevin Zhou, co-founder of crypto currency fund Galois Renta.
&ldquo,You&rsquo,ve seen thesis problems before ter bitcoin futures, where right before the settlement, the price pegs it high or low and then bounces back right after,&rdquo, he said.
(GRAPHIC: Bitcoin price hits record high – reut.rs/2AL7Ubh)
RISK OF AN &lsquo,AVALANCHE&rsquo,
Spil volumes increase, there are also questions about the robustness of the technology at bitcoin exchanges, Lothian said.
&ldquo,Particularly when you&rsquo,re talking about a high-frequency treatment to this where people are attempting to arb numerous exchanges.&rdquo,
Last month, the Gemini bitcoin exchange, which will set the price for Cboe&rsquo,s futures contract, and GDAX and Losbreken, two of the four exchanges te CME&rsquo,s bitcoin index, had systems issues.
&ldquo,Every single bitcoin exchange receives and is receiving complaints by users due to the unbelievably surging bitcoin price and the result that has on capacity,&rdquo, Christina Yee, a Losbreken representative, recently told Reuters te an email.
Losbreken is programma to launch a fresh trade engine &ldquo,soon&rdquo, which should increase the exchange&rsquo,s capacity, Yee said.
The volatile nature of bitcoin could also present a risk to clearing houses, said Thomas Peterffy, CEO of Interactive Brokers Group Inc ( IBKR.O ).
Clearing houses act spil a middlemen inbetween the parties to futures transactions. If there were a wild price sway ter bitcoin and a smaller brokerage failed to meet its margin call, the clearing house would have to take overheen the position, further moving the price of bitcoin, which could cause other brokers to fail, Peterffy said.
&ldquo,If that happens at a time when bitcoin spikes up for whatever crazy reason, there could be an avalanche,&rdquo, he said.
Questions like thesis have kept some futures market operators on the sidelines, for now. Intercontinental Exchange Inc ( ICE.N ), holder of the Fresh York Stock Exchange and ICE Futures U.S., opted not to join CME and Cboe ter the wedloop to be very first with a bitcoin future.
&ldquo,Wij didn&rsquo,t think it wasgoed evident to rush out a product and be very first and lodge against an index on a loterijlot of exchanges that are not particularly semi-transparent,&rdquo, ICE Chief Executive Jeffrey Sprecher said this week at a Goldman Sachs conference.
(GRAPHIC: Bitcoin’s impetuous ascent – tmsnrt.rs/2AHKJPd)
(GRAPHIC: Bitstamp daily chart – reut.rs/2AXjjVx)
(SPECIAL REPORT: Puinhoop and hackers stalk investors on cryptocurrency exchanges – here)
Reporting by John McCrank and Anna Irrera, Editing by Dan Burns and Mújol Shumaker