Wednesday , June 26, 2019

The Cboe’s Move to Stop Bitcoin Futures Trading May Not Be All That Hard a Hit

The decision by Cboe Global Markets Inc. to shut down its Bitcoin futures market, news of which emerged late last week, may have been seen as yet another blow to the digital currency’s bid for mainstream respectability. But in some respects Bitcoin may not be any worse off for the Cboe’s decision, observers say.

Indeed, Bitcoin’s value has actually climbed since the futures exchange’s move came to light late Thursday. It was trading at just over $4,000 at midmorning Tuesday, with a market capitalization of $71.5 billion, according to Coinmarketcap. That’s up from $3,900 and $68.8 billion at mid-day Thursday. The Cboe said its Bitcoin market will close in June, when the last futures contract expires.

Also, while the Cboe’s move disappointed enthusiasts who celebrated the exchange’s introduction of Bitcoin futures trading only 15 months ago, the other Chicago futures market, CME Group Inc., indicated on Friday it has no plans to shut down Bitcoin activity. The CME is a far bigger futures market for Bitcoin, with $90 million worth of futures exchanged last Thursday against $8 million at the Cboe, according to numbers the exchanges reported to The Wall Street Journal.

Both derivatives exchanges introduced futures trading for Bitcoin in December 2017 at a time when frenzied enthusiasm for the digital currency had driven its price to an all-time high approaching $20,000. Bitcoin’s subsequent collapse soured many traders on the currency, while its volatility led to skepticism that it could establish itself as a means of exchange at retail outlets.

That volatility has dampened somewhat since November, when Bitcoin’s price settled into a relatively narrow range spanning $3,200 to $4,200. At least one equity analyst, however, has seen signs that the price could skyrocket again by March of 2021.

Taming Bitcoin’s tendency to wild swings in price may prove to be a long-term project, however, with or without futures contracts. “Regarding volatility, every new currency experiences huge swings and that includes the U.S. dollar when it was first introduced,” notes Tim Sloane, vice president for payments innovation at Mercator Advisory Group, a Maynard, Mass.-based financial-services research firm. “Now, crypto enthusiasts are trying to tame the volatility by doing exactly what is done with fiat, which the crypto community hates. Either they peg the coins to fiat…or they create trading algorithms that attempt to moderate volatility, just like the central governments do with fiat.  It’s a strange world!”

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