Bitcoin Futures Faces Stiff Resistance From America’s Largest Banks
The much-anticipated launch of Bitcoin futures have extended the cryptocurrency rally, shattering one record after another. While investors and proponents of virtual currencies remain optimistic about the new derivatives products, it looks like America’s largest banks are not too amused – at least that’s how it would appear if you took their public stance on the face value.
In fact, not only are they not convinced, it seems Wall Street giants are backing their skepticism with action by not clearing bitcoin trades for clients when the trading of futures contracts in the cryptocurrency goes live.
Of course, as you would expect, there is no consensus on the issue on a global scale as of yet. Some multinational banks such as ABN Amro are going to clear such trading, but not before tying it up in a web of stringent regulations. The regulations, among other things, will ensure that bitcoin transactions are excruciatingly difficult.
The Futures Industry Association (FIA) has gone on record alerting the Commodity Futures Trading Commission (CFTC) against bitcoin futures contracts. FIA expressed its reservation claiming that bitcoin futures, as it stands today, leaves no room for “public transparency and input.”
The lobbying group says it is worried about the inherent complications present in these contracts and how they make risk management very difficult. Especially so considering the volatile swings bitcoin has undergone in the past few weeks. And the fact that its value fluctuated from exchange to exchange did little to remove those worries.
However, the FIA’s open letter to the CFTC also pointed out that it was possible for exchanges to self-certify certain products without requiring the latter’s approval. The FIA letter reads.
“We believe that this expedited self-certification process for these novel products does not align with the potential risks that underlie their trading and should be reviewed. Given the lack of historical data on these products, it is further concerning to clearing members that they will bear the brunt of the risk associated with them through their guarantee fund contributions and assessment obligations.”
Chicago-based Cboe Global Markets has already kicked off derivatives trading, which started on December 10, 2017. CME Group, Cboe’s rival and the largest futures exchange in the world, will follow suit by introducing its own offering on December 18, thus becoming the first traditional exchange to have a go at the exponentially expanding bitcoin market.
Major Wall Street banks that stand opposed to such trading include the likes of Citigroup and JPMorgan. Meanwhile, there are also the likes of Société Générale that still haven’t made up their mind. Goldman Sachs is also considering becoming a market maker to add liquidity, “In response to client interest in digital currencies, we are exploring how best to serve them in the space,” a statement from the bank reads.
This essentially leaves only smaller brokers where bitcoin futures trades will take place. For instance, UK-based ED&F Man Capital Markets has signed agreements with over 35 hedge funds and proprietary trading firms to assist them in buying and selling bitcoin futures. The firm are also in talks with at least six other potential clients too.
Brooks Dudley, vice president of risk in the U.S. told Bloomberg, “There were a couple of proprietary-trading firms that I didn’t expect to trade bitcoin, had never been really excited about it, and then Thursday, Friday they called and asked if we could prepare them for the open.”
Bitcoin reached a record-high of $17,478.42 on December 12. The most popular cryptocurrency in the world began the week at approximately $14,690.99 on the Bitstamp exchange.