Bitcoin just keeps on rising in value. Just more than a week after breaking $6,000 for the first time, the Bitcoin price reached another new high of $6,300 a few days ago, and is now on track to set a new all-time record for the fourth day in a row. As of Wednesday morning, Bitcoin just hit $6,612—and that’s only a few hours after it first crossed the $6,400 mark.
Sometimes, as was the case on Sunday, it’s not so easy to explain why the Bitcoin market is doing what it does. However, this time the explanation is fairly apparent.
On Tuesday, the CME Group announced that it hopes to introduce Bitcoin futures contracts by the end of the year, pending regulatory approval.
Futures contracts are agreements where the buyer pays now for a commodity that they will only receive at an agreed later date—if the commodity goes up in value by the date of delivery, the buyer is getting a good price; if it goes down, they lose money. So futures are essentially a bet on a market’s trajectory.
However, the trading of futures contracts further facilitates speculation as everything is done in cash and no one involved in the transaction has to hold the commodity at the time it takes place. Futures are also often cheaper than the commodity itself, again encouraging greater market participation—$66,000 may buy you ten Bitcoins, but (depending on the final specifics of the contract), it could buy you exposure to a multiple of that, amplifying your potential gains and losses.
The CME is the world’s biggest marketplace for these contracts, so its move makes it likely that more institutional investors will pile into the Bitcoin market without actually buying Bitcoin themselves. Cboe Global Markets, another Chicago derivatives exchange, has already announced a similar move.
“Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a Bitcoin futures contract,” CME Group chief Terry Duffy said in a statement. “CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities.”
The contracts will be settled in (actual) cash, at the CME CF Bitcoin reference rate, which launched in November last year and is calculated each day at 4 p.m. London time.
However, with so many people calling Bitcoin a bubble or a fraud, it’s not surprising that some are not happy about the CME Group’s decision.
Themis Trading principle Joe Saluzzi is one notable voice warning about the implications. He went on a Twitter tirade on Tuesday, pointing out repeatedly how unregulated the underlying Bitcoin exchanges are. In short, Saluzzi doesn’t think the regulators should allow this.
Apparently, the CME doesn't care about the underlying bitcoin markets and the potential for fraudulent and manipulative acts.
— Joe Saluzzi (@JoeSaluzzi) October 31, 2017
Remember the CDO wrapper around all those crappy mortgages during the financial crisis? Placing a wrapper doesn't make it safe.
— Joe Saluzzi (@JoeSaluzzi) October 31, 2017
Saluzzi told CNBC that he liked the concept of Bitcoin, but has a problem with the idea “that on Wall Street the innovators are trying to package something up and put a derivative label on it when they really don’t know what’s underneath.”
“It reminds me of the financial crisis all over again,” he said.
