by Jamie Holmes
The first bitcoin futures contracts were launched on December 10, leading to a recovery in the price of bitcoin. The volatility preceding the event saw new lows near $12,700 but the markets have reacted positively to the development, with BTC-USD near all-time highs (ATH) as the first full day of trading continues on December 11.
Ed Tilly, Chairman and Chief Executive Officer of Cboe Global Markets, said, “I’m pleased to report the successful launch of Cboe bitcoin futures.”
“Our regulated market experienced a smooth operational open and orderly markets throughout the evening trading session. We look forward to the growth of this new derivatives market.”
The derivatives allow individuals, whether they be miners or investors, to hedge risks, namely the fluctation in the price of bitcoin. For instance, a bitcoin holder who thinks the current rally is losing steam, they could short 1 January XBT contract. If the price falls, then the holder is compensated by the profit made from the short on the January XBT contract.
The cryptocurrency futures trading was halted twice as circuit breakers were triggered to ease the volatility; first for two minutes then for five as bitcoin exhibited large upward moves:
— Arnold (@arnoldmuimi) December 11, 2017
The CBOE offers three futures contracts; XBT/F8, XBT/G8, and XBT/H8 with expiry for January 17, February 14, and March 14 respectively. These contracts surged shortly after trading commenced on December 10, with the XBT/F8 contract reaching highs near $19,000, before retracing to around $17,700 at the time of writing.
Most of the volume went to the futures contract with January expiry; over 3,400 contracts have traded hands so far. While XBT/F8 trades around $17,760, the price on Bitstamp is around $16,220, indicating a significant premium for the futures contracts.
Andy Mukherjee, Bloomberg columnist, reckons that futures are not enough to put a lid on the volatility in bitcoin markets, suggesting that options are also needed too, “Once it’s possible for large pools of institutional liquidity to bet against an irrationally high (or low) futures price in relation to the spot, the latter will also steady. To speed up stabilization, though, you need options.”
Bitcoin is polarizing, as Mukherjee stated, and this is one reason why options would reduce volatility:
“…extreme views are ruling bitcoin. The only antidote is to have a mainstream venue like CME or Cboe offer options, so that irrational exuberance (or pessimism) is edged out.”
There is the group who think that bitcoin could attain colossal highs against fiat currencies; $50,000, $100,000 or even millions because of the cryptocurrency’s fixed supply, the unprecedented easy money environment, and relatively low adoption rate.
On the other hand, you have the people who argue bitcoin is in a bubble, or it has little to no real value at all. The current price trends are an amalgamation of the market participant’s thoughts and subjective valuations of bitcoin; as awareness and understanding permeate and numerous tests of bitcoin’s mettle are experienced, we should arrive at a fair valuation of the cryptocurrency.
Until then, there’s no doubt that bitcoin will continue to exhibit rapid movements. For several days now the range has been in the thousands of dollars.
The chart below shows the daily timeframe on the Bitstamp exchange. December 10’s candlestick is a bullish Doji variant, suggesting the bearish trend is over, and notice that the low of this candlestick aligned roughly with the 50 percent Fibonacci retracement level at $12,833.33.
The ATH is shown at $16,666.66, and a fractal sell level recently formed at this level. A break above $16,666.66 would open up a long-term drift toward $21,404.66. Support is seen at $15,111.50 and $14,857.33.