The Chicago Board Options Exchange, CBOE will launch Bitcoin futures on December 10, 2017 at 6pm E.T , it will be a landmark in bitcoin history and first opportunity for institutional investors to jump into the Bitcoin market.
Interest level of investors in bitcoin is really high, every one wants to know how they can trade bitcoin futures at CBOE, here’s how you can trade bitcoin futures
The Cboe will start by listing three near-term serial months. They will likely be January, February and March. They will expire on two business days prior to the third Friday of the month.
What will the initial prices be and what is the size of a contract? Each contract is one bitcoin. Market makers will set an initial price for each month and trading will begin. The front-month (January) price will likely be close to the underlying cash price. The minimum price interval is $10.00 per contract. The contracts are traded and settled in cash (you get dollars, not bitcoin, at the settlement).
How is the price determined? There are many different bitcoin exchanges, but Cboe uses Gemini Trust Co., an exchange and custodian founded in 2014 that allows customers to buy, sell and store digital assets such as bitcoin. There is a lively debate about how to “accurately” reflect the bitcoin price. CME, for example, is using the Bitcoin Reference Rate which is an aggregate of prices on four different exchanges. Bitcoin futures at CME are set to begin trading Dec. 18.
What are the fees for trading? Cboe will be waiving all of its transaction fees for the month of December. After that, the basic retail rate is $1.00 per contract.
What is the margin rate? Right now, the Cboe and CME will have margin rates of 40 and 35 percent respectively. (Note: Cboe has recently raised the rate from 30 to 40 percent) For example, if bitcoin is trading at $15,000, you can purchase a contract on margin for $4,500 (30 percent of $15,000).
When can I trade? Almost 24 hours a day during the week. Regular hours are 9:30 a.m. to 4:15 p.m. ET Monday through Friday, but extended trading hours go from 6 p.m. ET Sunday to 9:30 a.m. ET Monday, then 4:30 p.m. to 9:30 a.m. ET Tuesday through Friday.
How can I trade bitcoin futures on Cboe? You should contact your brokerage firm. Not surprisingly, retail brokers do not have a uniform stance on whether they will allow their clients to trade bitcoin futures. Fidelity is not currently planning to allow its members to trade futures contracts. Interactive Brokers will allow trading, but with a much-higher 50 percent margin requirement. Charles Schwab says it is evaluating its client interest in bitcoin, including their familiarity with the risk. And a TD Ameritrade spokesperson told CNBC they will only allow trading once volumes, open interest, and the market place meet their threshold
A number of large firms that typically cater to institutional brokers have already said they will not initially offer their clients access to the bitcoin futures market, including JPMorgan, Bank of America Merrill Lynch and Citigroup. Goldman Sachs, the largest U.S. futures broker, will offer access but only for certain customers.
If my broker doesn’t allow me to trade bitcoin futures, are there any other options? You could open a separate futures account with a futures broker, such as R.J. O’Brien.
Are there any price limits or trading halts? There are no price limits, but trading can be halted for two minutes under certain circumstances, for example when prices rise or fall 10 percent from the previous day’s price, and five minutes if it rises or falls 20 percent. The cash market for bitcoin would not be halted.
Will futures reduce or increase the volatility of bitcoin? No one knows. A lot will depend on how liquid the contracts themselves are, which depends on the number of participants and how many firms allow access to trading.
Can you short the futures contract? Yes. For example, suppose the bid is $15,000, you can go in and sell it immediately (you will have to post the margin requirement of 30 percent). You are now short one bitcoin contract at $15,000. If that goes to $16,000, you will have a potential loss of $1,000, and you may be forced to put up more margin. If it goes to $14,000, you have a potential profit of $1,000. You can close out the position at any time, or if you wait until the expiration it will settle automatically to cash.
Who are the market makers? There has not been a formal announcement of who the market makers will be, but some of the known large players — such as DRW and Virtu Financial — will be participating.
Who are the sellers? This is one of the big questions. You will likely see bitcoin miners as well as hedgers, or people who own bitcoin but sell futures against that to capture the spread. You may also see institutional traders come in because it’s a cash traded and settled account, you don’t need bitcoin.
This is a great step towards adoption of bitcoin United states and institutional investors would be able to participate in the market.
Australian Taxation Office warned against crypto retirement funds
Regulatory authorities around the world have tighten the grip on crypto projects. Taxation authorities like Internal Revenue Service (IRS) and Australian Taxation Office (ATO) are the latest to join the list with strong initiatives.
Australian Taxation Office recently sent warning letters to the investors who have invested a large part of their retirement savings in crypto related funds. ATO sent these letters in order to warn investors against high risk investments like crypto. One of the key responsibilities of regulatory authorities and taxation authorities is to keep investors away from high risk investment schemes.
A spokesman from ATO told local media that “We have already seen instances in 2018 where investors lost significant amount of their retirement fund in crypto investments, so it’s our duty to make them aware about the kind of risk crypto market posses”. The spokesman further explained that they are also against the huge exposure in any single asset class. “We are not saying that we are all and all against the crypto market or crypto assets, but we are more concerned about the kind of exposure these crypto retirement funds have in single crypto asset like Bitcoin”
“If an investor is putting more than 90% of his retirement savings in crypto then obviously it is at high risk and that’s what we discourage, we have no issues in diversified portfolios but if crypto retirement funds are having 100% exposure in crypto assets then we have to warn investors about the potential losses.
Self-Managed-Super Funds (SMSFs)
SMSFs are type of retirement accounts privately managed by individuals rather than the institutions or regulated financial companies. Australian Securities and Investments Commission also supports ATO’s decision, in a recent statement ASIC said
“Be wary of services offering to establish an SMSF for you in order to gain exposure to cryptocurrencies. Not only does operating an SMSF involve significant time, skills and responsibility, you may also be putting your retirement savings at risk”
Morning Crypto Roundup: Coinbase, Bakkt, Binance in news
“Coinbase seeing $200-400 million in new crypto deposits every week”: Armstrong
CEO of Coinbase, Brian Armstrong says that “Adoption of crypto by Institutions is no more an uncertainty. The question was valid about 12 months ago, but now everything has changed as we’re seeing $200-400 million a week in new crypto deposits from institutional clients”
In a recent tweet, Armstrong further says that trust and safety means a lot to crypto investors and Coinbase is on a mission to provide safe infrastructure to institutional clients in order to increase adoption.
Coinbase has completed acquisition of Xapo which helped them in institutional business. In a recent blogpost, Coinbase further mentioned that in just one year of launch, Coinbase custody has reached a staggering number of $7 billion of assets under custody, stored on behalf of 120 clients from 14 different countries.
The highlight of today’s tweet from Brian Armstrong was the numbers from Institutional investors. Safety have always been a big issue for investors and that’s why there were lot of discussions regarding adoption of crypto at Institutional level, but with $200 – 400 million coming into Coinbase every week, we can easily say that crypto adoption at institutional level is no more a question, it’s a reality.
The way forward
We already discussed about the importance of safety of funds in crypto market, but in order to increase adoption, crypto market must create new traders. Traders love leverage, borrowing and lending which allows them to trade the market even with limited resources. Retail forex market is a prime example of such facilities. Coinbase did mentioned in the blogpost that they are excited to explore new ways to monetize and leverage crypto assets like borrowing and lending.
Decision about the Bitcoin ETF by securities and exchange commission is pending in October. Exchange traded fund approval from SEC can open new doors for crypto adoption at an institutional level.
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