Bitcoin retreats after debut on world's largest futures exchange
Bitcoin was trading over three percent down at $19,000, and the market value of all of its virtual coins in circulation was worth $318 billion.
Cryptocurrency enthusiasts say the launch of futures trading on CME will help confer legitimacy of bitcoin and reduce its volatility, controlling further price rises. They also hope bitcoin would be recognized by institutional investors.
The week before, the Cboe Futures Exchange also started bitcoin futures trading. However, the CME launch has a significantly larger scale.
CME’s bitcoin contract will be derived from prices on four exchanges. Cboe's contract is tied to only one, Gemini. This makes a bitcoin contract look more attractive to generate institutional interest. It is also considered easier to buy and short sell.
However, the Cboe launch did not attract many investors. JPMorgan's Nikolaos Panigirtzoglou said on the first full day of trading on December 11 the trading volume was just $77 million. On December 2014 it declined to just over $20 million. On average, bitcoin transactions are worth $13 billion per day, according to data from coinmarketcap.com.
“CME’s bitcoin contract may not be first, but they are a larger futures clearinghouse, and we are looking forward to our clients trading their product on Sunday evening,” Brooks Dudley, vice president of risk in New York at ED&F Man Capital Markets, told Bloomberg.
“Not all market participants have been able to short the Cboe bitcoin futures. We have allowed our clients to go long or short to take advantage of dislocations between the futures and the underlying spot market.”
In finance, short selling is the practice of selling securities or other financial instruments that are not currently owned, and subsequently repurchasing them. It is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit.