Bitcoin Frenzy

Bullish bitcoin traders overpowered bearish ones on Monday, as the much-heralded launch of bitcoin futures further fueled exuberance for the nine-year-old digital currency. Bitcoin futures expiring in January settled at $18,545 on Monday, up 24% from the first trade value of $15,000, recorded when Chicago-based exchange operator Cboe Global Markets Inc. booted up the new market at 6 p.m. ET on Sunday evening.

In the lead-up to the debut of bitcoin futures, traders said that futures contracts would help reduce the volatility of bitcoin by drawing in both bullish and bearish players. With futures, “long” traders bet on a price increase while “short” traders bet on a fall in the price of bitcoin. Part of the bullish sentiment was artificial, the excitement to trade the Bitcoin future combined with the fact that many clearing houses offered long only trading which means short sellers were left out of the market keeping pressure off of the market.

Offering futures contracts for bitcoin allows investors to speculate on the digital currency’s price without actually owning any bitcoin. It also gives investors who believe that the run-up in price has produced a bitcoin “bubble” a chance to place a bet that bitcoin will soon fall in value. As the exchange and clearing houses asses risk on the Bitcoin trade they will start to open the markets up for full trading with reasonable margins which will create a two-sided liquid market

There have been a few sharp dips along the way, but bitcoin’s rise has been stunning, having doubled in price over the last three weeks. It is up more than 400% in the just the last two months, and up about 2,000% in the last year, according to CoinDesk. It had traded for less than $1 briefly in 2011. The meteoric rise has been fueled by many different things but the biggest the fear of missing out on the free money which is sure to bring some tremendous sell offs,

“Just as the SEC has a sharp focus on how US dollar, euro and Japanese yen transactions affect our securities markets, we have the same interests and responsibilities with respect to cryptocurrencies,” Jay Clayton, chairman of the Securities and Exchange Commission, said. The regulators are trying to figure out ways to control the Bitcoin while figuring out a way to tax it. This will also create and bring more volatility to the cryptocurrency. Stay tuned and watch the wildest trade in years


Keep those stops tight

Todd “Bubba” Horwitz