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All eyes on Bitcoin's futures trading debut in the wake of latest spike
BITCOIN'S meteoric price rise continued this week, when it blew past the US$17,000 mark on Thursday, before dipping in value on profit-taking.
The fresh surge, which came about a week after the cryptocurrency touched US$10,000, was fuelled by the introduction of bitcoin futures trading this weekend.
But going mainstream could prove to be the undoing of Bitcoin, which in the recent frenzy largely shook off its seedy past as a currency of choice for black-market deals online.
Cboe Global Markets, which owns what was formerly the Chicago Board Options Exchange, rolls out bitcoin future trades on Sunday evening; the Chicago Mercantile Exchange's parent CME Group will do so on Dec 18.
The Futures Industry Association's chief executive, Walt Lukken, has already fired back in a letter to United States Commodity Futures Trading Commission chairman Christopher Giancarlo.
He wrote on Thursday that the association and its member firms "are apprehensive with the lack of transparency and regulation of the underlying reference products on which these futures contracts are based, and whether exchanges have the proper oversight to ensure the reference products are not susceptible to manipulation, fraud, and operational risk".
Oriano Lizza, a sales trader at CMC Markets here, told The Business Times that Bitcoin's arrival on legitimate exchanges "could lead to a 'cooling-off period' as centralised exchanges get a foothold over the digital currency - something digital currency lobbyists do not want to see".
"Although not a traditional financial instrument, we could see traditional market cycles take over and exhaustion occur," he added.
Frank Troise, managing partner at private investment firm SoHo Capital, was surer that Bitcoin would falter under the increased scrutiny on exchanges.
"I think, after Sunday, once there's a futures market, it's going to be interesting," he told BT. "At the end of the day, it's a fool's game, because I'm trying to sell it to you, you're trying to sell it to me, and no one wants to be the last one holding on to this."
Mr Troise said "the regulators are going to clamp down on this at some point", but added that the challenge would be to figure out how to do so, short of outlawing Bitcoin altogether.
Douglas Streeter Rolph, an adviser to SoHo Capital and senior lecturer at the Nanyang Technology University's Nanyang Business School, told BT: "One of the things about using Bitcoin as a means of transaction in business is that, if your underlying business is in dollars, there's a lot of volatility."
He predicted that moving onto a formal exchange "is going to reduce the exchange risk, which is a very big part of Bitcoin now". He added: "I think that, from a hedging perspective, the move makes it more attractive for people to use Bitcoin."
Market watchers were also divided on what has been behind the latest spikes on the bitcoin exchanges.
Daniel Liebau, founder of research and advisory firm Lightbulb Capital, noted: "All cryptocurrency prices, including Bitcoin, currently seem to be appreciating mainly because of capital in-flows, and not because of the value being created by individual blockchain projects."
He added in an e-mail to BT that the reluctance of banks to maintain accounts for individuals receiving large sums related to cryptocurrency "might have a stabilising effect and perhaps even prevent a sharp sell-off of cryptocurrencies into fiat".
CMC Markets' Mr Lizza said: "What we are seeing now is institutional investors looking to diversify their portfolios and, from a risk perspective, institutional bodies buying physical bitcoin in order to offset their overall exposure.
"These investments obviously will be dwarfing retail investment and, due to (Bitcoin's) decentralised nature and one-directional movement, demand is outweighing supply, causing daily fresh highs."
Mr Troise of SoHo Capital, disagreed. "Every institutional investor that I speak to sees it as one of the most prolific bubbles that they've come across," he said. "The only reason why this has been surging is because of retail buyers."
Whatever the cause, Bitcoin's rollercoaster ride - and the hammering hearts at each new crest - has livened up a quiet end-of-year season.