Only Big Broker Offering CME Bitcoin Futures Allows Whales to Short

Sunday’s historic opening of Chicago Board Options Exchange (Cboe) bitcoin futures proved almost too much for the legacy market maker. The world’s most popular cryptocurrency, however, remained resilient, and contracts went long, assuming its price would continue to rise, bullish. As its crosstown rival Chicago Mercantile Exchange (CME) readies for its bitcoin futures this coming Monday, the only major broker offering such futures reversed course and is now allowing its monied-clients, whales, to also short bitcoin, an expensive and risky trade for bulls.

Also read: Howard Stern and Saturday Night Live Reference Bitcoin as Popularity Grows

Interactive Brokers Bows to its Whales, Permits Bitcoin Shorts

Irony is racking up. Bitcoiners have momentarily ditched their almost religious reverence for Satoshi Nakamoto’s white paper, and are cheering the very institutions the peer-to-peer electronic cash system was designed to thwart. Furthermore, institutional financial media chided bitcoin’s ecosystem for not being able to scale, for its lack of readiness leading up to futures markets…and within literally minutes, it was Cboe that crashed under the weight of the supposed newbie. The final ironic example happened Tuesday in an interview with Buzzfeed.

No person less than bitcoin’s number one Cassandra, the man who took out a full-page Wall Street Journal advertisement to proclaim economic apocalypse should the decentralized currency be permitted on CME, turns out to head the only major brokerage offering bitcoin futures. And he insisted his firm would only allow long contracts, … until they changed course.

“Many of our clients asked us to make trading available for them,” Thomas Peterffy, founder of Interactive Brokers, told Matthew Zeitlin. “Why am I allowing my clients to buy Tesla? Don’t forget that 20 years or even ten years ago, why would you allow people to buy Amazon? I remember when it [went] down to $2 [per] share,” Mr. Peterffy analogized, comparing bitcoin to other famous forms of speculation.

Interactive Brokers is considered a pioneer in electronic trading, and routinely ranks highest in the U.S. among such brokerages and foreign exchange brokers. The four decades-old firm has been enjoying its own bull run the last year or so, with revenues as high as 1.4 billion USD.

“Currently,” Mr. Zeitlin explained, “there’s a large premium in the futures market for bitcoin — right now the contract to buy bitcoin on January 17 is worth $18,450, compared to the $17,460 listed ‘spot’ price for bitcoin itself.”

Bears Can Short as Long as They’re Whales

Mr. Peterffy puts the difference into perspective: “That says to me that there aren’t enough brokers allowing shorting because, if there were, there would be people that buy the cash and sell the futures,” he said.  

In his open letter to regulators last month, Mr. Peterffy stressed, “Cryptocurrencies do not have a mature, regulated and tested underlying market. The products and their markets have existed for fewer than 10 years and bear little if any relationship to any economic circumstance or reality in the real world.”

He also notes bitcoin’s price volatility in the letter, and as such went on to initially restrict Interactive Brokers customers from going short.

To have it both ways, essentially, the firm is now requiring 100,000 USD minimum, well beyond proposed CME requirements, many times above the actual contract.    

“It’s not the little people,” he told Buzzfeed. Such contracts will be of interest to what the industry refers to as whales, large investors: hedge funds, institutions, etc.

What do you think about bitcoin futures being shorted in the coming CME market? Let us in the comments below.

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