Economists brace for bitcoin bubble to burst, while futures trading launches
Cryptocurrencies only have value if accepted as currencies and supply can only ever rise, not fall.
The largest U.S. options exchange, CBOE, launched bitcoin futures trading over the weekend, offering investors their first opportunity to bet on whether the cryptocurrency’s value will rise or fall over time.
CBOE trading saw initial bitcoin futures contracts, expiring in January, start at $15,000 before increasing to more than $18,000. The contracts are based on the value of bitcoin as quoted on the Gemini exchange.
The company said there were over 800 contract trades in the first 2 hours of the futures marketplace launch.
A CBOE insider told the BBC that the start was low key, with “no champagne”, while CBOE warned traders that its website was running slowly and could be temporarily unavailable despite activity operating normally.
The Chicago Mercantile Exchange (CME) revealed its own plans to launch bitcoin futures on December 18, 2017. Futures are already being tested and will be based on the underlying CME CF Bitcoin Reference Rate value.
Long-term future pricing has been heralded by some investors as a considerable vote of confidence for virtual currencies, potentially paving the way for less market volatility and further increased investment over time.
However, UBS Wealth Management remains unconvinced as to whether bitcoin and other digital currencies have a shelf life. The currency’s legitimacy is a hotly debated topic among economists and trading strategists.
“The bubble to end all bubbles continues,” UBS chief economist Paul Donovan wrote in a note to investors.
“Cryptocurrencies only have value if accepted as currencies. However, they cannot be used for the most important transaction in an economy, and cryptocurrency supply can only rise and never fall (making them a poor store of value). To date, using cryptocurrencies requires (effectively) a simultaneous asset sale and purchase of goods or services.”
The commentary, posted on Monday, supports UBS’ previous speculation, published in a white paper in October, that bitcoin’s intense price volatility doesn’t reflect its capacity as a sensible store of value.
In September, Bridgewater Associates founder Ray Dalio told CNBC’s Squawk Box he didn’t believe in bitcoin.
“You can’t make much transactions in it. You can’t spend it very easily. It’s not an effective storehold of wealth because it has volatility to it, unlike gold. Bitcoin is a highly speculative market. Bitcoin is a bubble,” Dalio said.
Earlier this year, JPMorgan Chase’s CEO Jamie Dimon referred to bitcoin as a “fraud” that “won’t end well”.
CBOE’s chief executive Edward Tilly told Financial News that concerns regarding certification for bitcoin futures trading, raised by the Futures Industry Association in an open letter to the Commodity Futures Trading Commission (CFTC) last week, were “uncalled for”, “irresponsible” and took “cheap shots” at the regulator.
Bitcoin is hovering around $17,300 as of 3:30 p.m. December 11, according to coindesk’s Bitcoin Price Index.
The total value of global bitcoin market capitalization has grown from less than $1 billion five years ago to over $183 billion in 2017, including a daily turnover of around $10 billion, according to coinmarketcap.
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