by Robert DeVoe
Thomas Peterffy, chairman of Interactive Brokers Group, addressed an alarming open letter to the Commodity Futures Trading Commission chairman in Washington DC. The letter is a stern warning against the upcoming listing of bitcoin-based futures by CME. More specifically, he asked that any futures involving bitcoin or any cryptocurrency be kept strictly separate from other investment vehicles.
His reason for this demand? In his open letter, he stated the following:
“There is no fundamental basis for valuation of Bitcoin and other cryptocurrencies, and they may assume any price from one day to the next.”
No Intrinsic Value
In other words, Peterffy is relying on the classic “no intrinsic value” argument against cryptocurrencies. This kind of sentiment has been echoed by a number of other old world financial pundits. Howard Marks of Oaktree Capital famously told Wired that cryptocurrencies were just a fad, and of course, lacked “intrinsic value.”
Arguments against cryptocurrency aside, sentiments specifically against cryptocurrency futures are still relatively new. Henry Blodget of Business Insider also stated that bitcoin could just as easily hit $10 million or $0 at a moment’s notice.
Bitcoin is Immature, Lacks Tested Markets
Peterffy continued his letter, saying that cryptocurrencies lack “…mature, regulated, and tested underlying market[s].” Following this, he threatened that if the CME, the company pursuing the futures listing, were to clear cryptocurrency-related investment products alongside traditional ones, the fallout would be catastrophic. Doing so, in his opinion, could destabilize the clearing organization and destroy their ability to “…pay the winners and collect from the losers on other products in the same clearing pool.”
To put it simply, Peterffy’s fear seems to be based on the idea that cryptocurrency values could collapse in the blink of an eye. If that were to happen, the firms in charge of the futures would be left holding the bag, unable to pay out claims to its investors. With potentially billions of dollars on the line, such a catastrophe would be of epic proportions and could taint the cryptocurrency sector for decades to come.
Separate and Unequal
Is Peterffy entirely against cryptocurrencies? Based on his open letter, the answer appears to be no. At least, he does not denounce them in absolute terms, only saying they are immature. While clearly, the Interactive Brokers Group chairman has his doubts about digital currency, he does offer a solution regarding how to still allow bitcoin and cryptocurrency futures to exist. In the letter, he writes:
“The only way to protect clearing organizations and their members (and the financial system as a whole) from the unique risks inherent in clearing cryptocurrencies is to require that they be cleared in a separate clearing system, isolated from other products.”
The statement above leads us to the only logical conclusion; are cryptocurrencies and other futures investments truly equal? If cryptocurrencies need to be isolated, are they safe investments? Unfortunately, as Peterffy notes, cryptocurrencies have existed for less than ten years. However, an uncertain future is no reason just to write them off.