US recognized bitcoin, but it did not become more reliable

The launch of trading bitcoin futures in the US last week was accompanied by hiccups and stops, but in the end the scheme worked. Thus, another important step has been taken to institutionalize and recognize the world's main crypto currency of the modern world. Now Germany also thought about following the example of the Chicago Stock Exchange, and market participants forecast the growth of the bitcoin rate to 40 thousand dollars next year. Skeptics, however, predict that futures trading may be the beginning of an end for the bubble of virtual currencies.

Over the past year, the bitcoin rate has jumped more than 16 times, and capitalization has reached $ 300 billion. With this indicator, the crypto currency has become an important part of the global financial market. Meanwhile, it has not yet been accepted by the authorities (only Japan from the major economies of the world introduced bitcoin into the legal field, and China, on the contrary, limited its circulation). The financial sector stubbornly does not take the crypto currency seriously. Only very few "mainstream" financiers, for example, Mike Novogratz, believed in it. The rest, including the head of JP Morgan, Jamie Daymon, still consider bitcoin a dangerous financial pyramid, built by geeks who are not versed in finance. In such conditions, each new success of bitcoin is perceived by crypto-currency enthusiasts as a breakthrough.

On the other hand, it would be strange for trading platforms not to use the excitement. Dozens of online exchanges are already earning quite real money on trading crypto-currencies. It was to be expected that the stock market professionals would get down to business. The first was the Chicago Board Options Exchange (CBOE), which opened futures trades in January (contracts with redemption in the future).

To spite to skeptics

Not everything went smoothly. Even before the launch of the trading session, the stock exchange site went offline, and then trades stopped twice because of a 10 percent change in quotations (the procedure adopted on any stock exchanges in relation to any securities). In the bidding process, January futures jumped over the mark of 17 thousand dollars, and the session began with 15 thousand. Contracts for March exceeded the level of 19 thousand dollars. During the following week, the bitcoin rate, like the value of futures, fluctuated significantly, but as a whole was kept in the range of 15-18 thousand dollars and renewed the weekend the next maximum, breaking the boundary of 20 thousand dollars.

The stock exchange is satisfied with the results of trading - on the first day almost 4 thousand basic, January futures contracts were sold. Not so much by the standards of developed financial markets, but not bad for a debut and more than expected. The first days of trading with these derivatives showed that the demand and interest in them is large enough so that other exchanges followed the example of the Chicagoans. So, NASDAQ announced that it is launching trading in futures for crypto currency in the first half of 2018. On the other side of the Atlantic, too, fussed: Deutsche Boerse is currently "exploring the issue", and if the results of this study prove to be positive, trading in bitcoin-related papers will start in Europe.

Wait for sharks

Really big players, like the already mentioned JP Morgan or Citigroup, have not entered the game yet. Apparently, they are afraid of the unpredictability of the emerging market, extremely vulnerable to a variety of technical failures. Memory of the collapse of the Mt. Gox in Tokyo in 2014 is still too fresh and painful. Then, by the way, bitcoin collapsed in price at once to third. It is easy to imagine what will happen if not the advanced enthusiasts but the largest banking houses of America, Europe and Asia participate in the auctions, and suddenly such an ill luck will happen.

It is possible that experienced market participants expect the closing of deals, which will begin on January 17, 2018, the day the first CBOE contracts expire. The fact is that there are serious doubts about their implementation. Firstly, the cost of futures and the real rate of bitcoin are quite different, sometimes exceeding a thousand dollars. The difference between futures and the current price of an asset is noticeable, but not to such an extent (6 percent or more).

The second problem is related to the decentralization of the market. CBOE focuses on the bitcoin course of the American exchange Gemini, owned by the Winklevoss brothers. Given the speed of trade, at a particular time the price of Gemini and, for example, Asian trading platforms, can vary widely. Futures owners can easily drop the bitcoin rate in the US by starting a sellout just before the contracts expire, then buy the bitcoins on Gemini and sell them again abroad. This can cause panic on the stock exchange and its collapse, as happened with Mt. Gox, which in 2014 went bankrupt after the attack of hackers and subsequent sales.

Potential investors also do not like that in the market of bitcoins, in fact, several hundred players (these are the same Winklevoss brothers), who own about 40 percent of the entire market, run. This is not even in the sphere of trading anything, even gold, even oil. This makes the still not the largest market by volume very vulnerable to various manipulations.

Finally, at the moment, the features of the crypto-currency market, in particular bitcoin, make it difficult to sell it in serious quantities at the right price. The futures market is able to change everything. On the one hand, short positions on bitcoin will be interesting for hedge funds, which will believe in the existence of a counterbalance to the infinite growth of the price of the asset. On the other hand, it may turn out that large investors will begin to aggressively play on lowering futures, as a result of which bitcoin simply collapses, unable to withstand the pressure of really powerful players.

What in the end? Despite all the enthusiasm of individuals, the crypto-currencies have yet to gain the confidence of serious investors. It's too early to say that bitcoin can squeeze out the traditional security asset - gold, believe Goldman Sachs, the largest investment bank in the world, that polemicises in absentia with one of the most successful and large bitcoin investors, Mike Novograz. He said that the virtual currency is "digital gold" and next year its rate will reach 40 thousand dollars.

Goldman Sachs considered such a comparison to be frivolous given that the entire market capitalization of bitcoin, even after a mad breakthrough in the last month, is $ 300 billion, and the entire market is crypto-currency - about $ 600 billion. For comparison, gold is traded in the world for 8 trillion dollars - more than 16 times more. Liquidity levels in these markets are completely different, this is how to compare government bonds of the US and Russia.

In general, with the largest banks, the crypto-currencies and their enthusiasts are still somehow not developing - most of the banks are skeptical, and sometimes even openly hostile. Enthusiasts of the Crypto-currency believe that bankers simply do not benefit from bitcoin, because it threatens the entire banking system. However, only leaders of the market differ from the hostile attitude. Outsiders, on the contrary, are ready to take advantage of the opportunities offered by virtual currencies.

Air bail

So, last week Bloomberg reported that in the United States a number of start-ups have appeared that offer lent money, using bitcoins as collateral. In the country, suddenly found a lot of millionaires - the owners of the bitcoins, who to borrow on the security of their crypto-currency reserves is easier and cheaper than selling them. These suddenly wealthy gentlemen also want to own yachts, chic houses and cars, but they are not ready to give up what they owe their wealth, - will it suddenly rise in price?

With these services, there is one problem - the bitcoin rate is too unstable. Therefore, the collateral will have to give a lot more than the face value of the loan, maybe twice. As for interest on such loans, the rates can be from 12 to 20 percent, which by American standards is quite a level of microfinance organizations. And before the full institutionalization and stabilization of bitcoin as an asset, it can not be otherwise. But to complete this process it just need to survive the fever period. Until when it will last, nobody knows, but the organization of futures trading is an important step in this direction.

So far, the signals are positive: on December 18 trading in futures starts at another Chicago platform - the Chicago Mercantile Exchange (CME), which even launched an educational course "bitcoin for dummies." The position of carefully monitoring regulators, while somewhat wary of the new branch of the financial market, largely depends on how successful the crypto currency trading will be for a wider range of investors.

Arthur Swan
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