Bitcoin hit the futures market on Sunday, in a move some believe could help legitimize the viability of the cryptocurrency in the eyes of financial professionals. The Chicago Board Options Exchange will allow traders to agree on bitcoin prices for delivery at a later date, meaning investors can speculate on the future price of the asset to make a profit. Soon after launch, bitcoin futures surged by 26 percent, triggering two trading halts aimed at stabilizing markets.
“It is rare that you see something more volatile than bitcoin, but we found it: bitcoin futures,” Zennon Kapron, managing director of Shanghai-based consulting firm Kapronasia, told Time.
Futures set to expire in January opened at $15,000, but surged to $17,450 just before noon London time.
Unlike other futures contracts that involve the actual trading of goods, these will be settled on a cash basis. That means investors agreeing to buy at a later date won’t receive bitcoins, but rather the value of bitcoin as decided by the Gemini exchange. This is the exchange owned by Tyler and Cameron Winklevoss, who bought $11 million in bitcoins four years ago and are now believed to be the world’s first cryptocurrency billionaires.
The launch of CBOE futures has already led to some excited social media posts:
Some market watchers lamented the fact they didn’t act sooner to invest in the cryptocurrency:
Not every exchange will follow CBOE’s lead and trade based on a single price. CME Group, which plans to launch bitcoin futures next weekend, will use four sources to determine a price, while Nasdaq will use more than 50 sources when it launches next year.
The utility of these futures contracts is somewhat questionable, as the cash focus of the agreements appear to serve little purpose beyond price speculation.
“Futures have real-world value, for example allowing producers or consumers of a commodity to insure themselves against price movements, or helping investors to hedge their positions,” financial commentator Richard Beales said in a Reuters story. “In the bitcoin world, there are so-called miners with investments in processing power and hefty costs like electricity who could use the contracts this way, but that’s about it.”
However, some hope that the shift toward bitcoin being treated as a more legitimate asset could help bring the cryptocurrency into a legal framework.
“It is a signal to the FinTech community that traditional financial services firms are ready to work with them and the regulators to address how these new financial products can be traded in a manner that is compliant with the securities laws and the commodities laws,” Rick Levin, chair of the finTech and regulation team at law firm Polsinelli, told Inverse in an email.