Bitcoin slumps below $16000, triggering a freeze of futures trading

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Even household names including Goldman Sachs have said they plan to clear Bitcoin futures on behalf of some clients.

The newly launched Bitcoin futures on the Cboe Futures Exchange were also tepid, with prices steady and volumes a fraction of those seen on Monday. With the launch of Bitcoin futures being a test bed for the deployment of more cryptocurrency derivatives, the expansion of the asset class to the futures markets may be only just beginning. Current appetite for the futures contracts seems to show a stronger preference for near-term bitcoin futures priced above the current spot rate.

"Now that the exchange price is relatively calm, it is obvious for futures trading volume to fall". They constructed an at-the-money "straddle" around a strike price of $12,000 on December 5 by buying two bitcoin put options for that amount and one call. As reported by CoinDesk, the first contract is expected to expire on January 17, with others set to expire in March. Bitcoin was already experiencing significant growth prior to Bitcoin Futures, but its possible CME's plans will prompt yet another surge.

Whether investors judge that to be too high or too low given all the other interest rates in the economy, including, most importantly, the US dollar one of 1.52 percent, will see spot and futures prices adjust accordingly. In Korea, the Financial Services Commission financial regulator issued a directive that bans securities firms from taking part in Bitcoin futures transactions.

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The futures are cash-settled contracts, allowing investors exposure without having to hold any of the cryptocurrency. In 1750BC in Mesopotamia the Babylonian king, Hammurabi, introduced a legal code, which included stipulations for trading goods at a future date for an agreed-upon price. The exchanges assured the CFTC that the new products were compliant with the self-certification process rules, and the CFTC refrained from halting the self-certification. Bitcoin was up more than 1,600 percent so far in 2017, having started the year at less than $1,000. Similarly, in the case of bitcoin futures, the underlying asset is the bitcoin price and there is no actual buying and selling. Just on its first day of Cboe trading, the futures contract traded between $15,460 and $18,850. The Chicago Mercantile Exchange's announcement notably coincided with the anniversary of the publication of Bitcoin inventor Satoshi Nakomoto's original 2008 white paper on the cryptocurrency. These numbers indicate that the bitcoin futures reflect a positive sentiment. What futures prices won't tell us is the dispersion of expectations and their probabilities. Ethereum, it's closest competitor, has a market cap of $65.86 billion. This is risky since the price can move against your expectation but the obligation to settle remains.

After discussing whether or not Bitcoin was in a bubble back in October, my colleague Nick Cawley and I will be back on Tuesday, December 12 at 7:00 EST/12:00 GMT for the next webinar in our special series on Bitcoin trading and strategy - you can register here.

Perhaps more worryingly, the levels of futures trading has not been as high as the initial flurry of excitement may suggest. Since futures is a predictive market, there is a need for strong counter-party protection.