Cboe Bitcoin Contracts Slide 36 Percent as January Futures Expire

Chicago Board Option Exchange (Cboe) historic bitcoin futures market has had its first month, and results are decidedly mixed depending on the analyst. Some see the experiment as a dud, while others champion the mainstreaming of cryptocurrency. So far, bears are trouncing bulls.  

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Cboe Futures Didn’t Tame Bitcoin

That run-up though! Coming bitcoin futures in December of last year were supposed to bring about mainstreaming and liquidity galore in the ecosystem. Oh, what a difference a little over a month makes. 17 January 2018 is a marker which will help professional investors analyze the facts of the matter.

It’s the official expiration of Cboe bitcoin futures contracts, and at present the verdict appears to be, well, mixed. The world as we know it did not end, as some Wall Street pros worried, despite two rather dramatic price flubs, including the current dip as of this writing. Volume was mostly flat, dominated by foreign trading.

It appears bitcoin can be shorted successfully, though maximalists scorned even the possibility, as net figures from the CFTC witness: shorts clicked over 1,900 contracts in the new year’s second week according to the Commodity Futures Trading Commission (CFTC). The CFTC is expected to testify before congress at the end of this month about cryptocurrencies. Lawmakers in the US have been eager to get a handle on just what is happening in a market few understand.

Since Cboe’s entrance into the ecosystem, bitcoin has given up a quarter of its value and has dropped a staggering 36 percent in spot price, dipping beneath even the coveted champagne mark of 10,000 USD.

The Future of Futures

Futures took on greater significance beyond the hype to include widespread hope the US Securities and Exchange Commission (SEC) would allow exchange-traded funds (ETFs) on well-known markets like the New York Stock Exchange Arca (NYSE), but even that has proven not to be the case thus far. Two funds just recently pulled their applications as a dozen more are awaiting approval.

This year, Cantor Fitzgerald and Nasdaq are expected to jump into the fray, though plans can change if the price continues to bottom and volume remains blah. Out-front firm Gemini Exchange (they’re appealing ETF rejection from the SEC) is the auction from which bitcoin price in USD is determined for Cboe.

Its crosstown rival, Chicago Merc (CME), has contracts expiring on 26 January. Cboe investors are expected to close contracts without much trouble, and usually futures are folded into the following month. Usually. This is crypto. Because settling is done in government paper, buying and selling orgies could monkey with prices at the very end as arbitrage fever takes hold.

Wall Street needs steady. This is why it simultaneously complains but ultimately welcomes government intervention by way of regulation so they can be insulated. But, again, this is crypto. Big daddy government can’t save them. Still, relatively calm closings of contracts consistently could lead to what some enthusiasts salivate over: options. Option traders, however, often want a hedge, and that requires open interest.

You look at the entire crypto space and you look at what other products have, the liquidity and the notional size, a derivative makes sense.

Options and Alts

To get to options, traders need to see several months of smooth closes in the futures contract, as well as large open interest in the contracts, and that may be an issue. Options traders want large open interest because they will want to hedge using futures. And that’s the rub, so far. Volume and open interest have been weak, leading some to believe options are all but out of the question. Chris Concannon, Cboe president, is looking further ahead, musing, “You look at the entire crypto space and you look at what other products have, the liquidity and the notional size, a derivative makes sense,” Bloomberg quoted, hinting at even more futures to come with regard to altcoins.

For its part, Gemini celebrated in a blog post by quoting Cboe Chair Ed Tilly: “This is an encouraging initial milestone, and we look forward to working with customers to power the growth of this nascent market.”

What do you think about bitcoin futures thus far? Let us know in the comments section below.

Images courtesy of Pixabay.

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