Bitcoin soars 26% at Cboe opening bell; most experts fear bubble

Bitcoin futures started with a bang, jumping more than 20 per cent in their eagerly anticipated US debut Sunday evening, which backers hope will encourage wider use and legitimacy for the world's largest cryptocurrency even as critics warn of the risk of a bubble and price collapse.

Futures on the popular cryptocurrency surged as much as 26 per cent in their debut session on Cboe Global Markets Inc's exchange, triggering two temporary trading halts designed to calm the market. Initial volume exceeded dealers' expectations, while traffic on Cboe's website was so heavy that it caused delays and outages.

The exchange said that due to heavy traffic, the website ''may be temporarily unavailable''. The website's problems had no impact on trading systems, Cboe said.

The one-month bitcoin contract opened trade at 6 pm (2300 GMT) at $15,460, dipped briefly and then rose to a high of $18,700. As of 0630 GMT, it was up 17 per cent from the open at $18,140, with 2,368 contracts traded.

On the Luxembourg-based Bitstamp, bitcoin prices surged 9.6 per cent to $16,100. It is up more than 1,400 per cent so far in 2017, and its gains in the past month have been rapid.

Bitcoin futures expiring in January traded at $17,930 as of 8:38 a.m. in London, up from an opening level of $15,000, as about 2,700 contracts changed hands. Bitcoin has gained 7.3 per cent since late Friday to $16,791, according to the composite price on Bloomberg.

The launch of futures on a regulated exchange is a watershed for bitcoin, whose surge this year has captivated everyone from mom-and-pop speculators to Wall Street trading firms. The Cboe contracts, soon to be followed by similar offerings from CME Group Inc and Nasdaq Inc, should make it easier for mainstream investors to bet on the cryptocurrency's rise or fall. Bitcoin wagers have until now been mostly limited to venues with little or no oversight, deterring institutional money managers and exposing some users to the risk of hacks and market breakdowns.

Experts had worried that the risks associated with the currency's Wild West-like nature could overshadow the futures debut. Bitcoin tumbled 20 per cent in 10 hours on Friday.

While proponents of regulated bitcoin derivatives say the contracts will increase market transparency and boost liquidity, sceptics abound. JPMorgan Chase & Co chief executive officer Jamie Dimon has called bitcoin a ''fraud,'' while China's government has cracked down on cryptocurrency exchanges this year (See: China to ban trading of bitcoin). The Futures Industry Association - a group of major banks, brokers and traders - said this month that contracts in the US were rushed without enough consideration of the risks.

So far though, trading has kicked off without any major hiccups.

Dealers said volume was high for a new contract, even though it was tiny relative to more established futures. And the trading halts took effect just as Cboe had outlined in its rules. Transactions stopped for two minutes after a 10-per cent gain from the opening price, and for five minutes after a 20 per cent jump. Another five-minute halt will take effect if the rally extends to 30 per cent, Cboe said in a notice on its website.

The futures are cash-settled contracts based on the auction price of bitcoin in US dollars on the Gemini Exchange, which is owned and operated by virtual currency entrepreneurs and brothers Cameron and Tyler Winklevoss (See: Winklevoss twins become world's first bitcoin billionaires). Bitcoin was quoted at $16,355 on the Gemini exchange.

Market participants said the launch of the futures contract wouldn't necessarily reduce volatility in the cryptocurrency.

''There are no ways to arbitrage between the market and other exchanges, CBOE cannot settle Bitcoin as far as I know,'' said Leonhard Weese, president of the Bitcoin Association of Hong Kong, referring to sharp differences in bitcoin prices worldwide.

''Regular bitcoin traders don't have access to it, and the trading desks that use the futures market don't have access to bitcoin,'' he told Bloomberg.

While bitcoin's price rise mystifies many, its origins have been the subject of much speculation.

It was set up in 2008 by someone or some group calling themselves Satoshi Nakamoto, and was the first digital currency to successfully use cryptography to keep transactions secure and hidden, making traditional financial regulation difficult if not impossible.

Central bankers and critics of the cryptocurrency have been ringing the alarm bells over the surge in the price and other risks such as whether the opaque market can be used for money laundering.

 ''It looks remarkably like a bubble forming to me,'' the Reserve Bank of New Zealand's acting governor Grant Spencer said on a television programme run on Sunday.

''We've seen them in the past. Over the centuries we've seen bubbles and this appears to be a bit of a classic case,'' he said.

Many investors have stood on the sidelines watching its price rocket. However, it is possible to buy bitcoin without having to spend the full price of one coin. Bitcoin's smallest unit is a Satoshi, named after the elusive creator of the cryptocurrency.

Somebody who invested $1,000 in bitcoin at the start of 2013 and had never sold any of it would now be sitting on around $1.2 million.

Heightened excitement ahead of the launch of the futures has given an extra kick to the cryptocurrency's scorching run this year.

The CME Group is expected to launch its futures contract on 17 December.

The launch has so far received a mixed reception from big U.S. banks and brokerages, though, according to Reuters.

Several online brokerages, including Charles Schwab Corp and TD Ameritrade Holding Corp, did not allow trading of the new futures immediately.

The Financial Times reported on Friday that JPMorgan Chase & Co, Citigroup Inc would not immediately clear bitcoin trades for clients.

Goldman Sachs Group Inc said on Thursday it was planning to clear such trades for certain clients.

For now, Cboe futures account for a tiny slice of the world's bitcoin-related bets. The notional value of contracts traded in the first eight hours totalled about $40 million. Globally, about $1.1 billion of bitcoin traded against the U.S. dollar during the same period, according to Cryptocompare.com.