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Nasdaq Full Steam Ahead on Bitcoin Futures, New Target Q1 2019

Bloomberg has reported that Nasdaq Inc has decided to move forward with its plans to list Bitcoin futures and this could happen as soon as the first quarter of 2019.

Nasdaq is following up on its initial plans in November 2017 to launch Bitcoin futures in 2018, doing so in the hopes of sustaining a long-term cryptocurrency patronage. However, it failed to execute its original plans, committing to satisfy the standards imposed by the US financial regulator Commodity Futures Trading Commission (CFTC).

Bitcoin futures were thought to be instrumental to the astronomical rise of the price of Bitcoin last year, with the market registering price verticals as high as USD 20,000. The first two derivative markets to launch the bitcoin futures were CBOE Global Markets Inc and CME Group Inc, after which the CFTC decided to review the processes for listing crypto derivatives.

Nasdaq’s decision comes as a bold move considering the current market conditions, as Bitcoin has dropped from its all-time high and now trades as low as USD 4,000.

The current market conditions seem to have fallen short of the initial expectations that institutional investments attracted by the Bitcoin futures contract would be the sustaining wave for the next cryptocurrency mass adoption. However, this year’s market has only been in the reverse. Still, institutional investments remain a topic of focus as speculation on them make headlines daily.

Moving forward, it does seem as though Nasdaq had been brewing on its plans to ensure that it meets the demand of a wide range of investors and ensure that its contracts services are foolproof, thereby outpacing its competitors. This was disclosed by an unnamed source reported by Bloomberg who said:

“The Nasdaq futures will be based off the Bitcoin’s price on numerous spot exchanges, as compiled by VanEck Associates Corp… CME uses prices from four markets, while it’s just one at Cboe.”

On a general note, Nasdaq has shown a keen interest into blockchain technology as a whole alongside the derivative systems, even considering the possibility of a Nasdaq cryptocurrency exchange in the future.


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Bitcoin Stabilizes As Market Speculation Falls According to Experts

Bitcoin’s stability over the recent months has cryptocurrency commentators agreeing that speculation is leaving the market and giving way to a sense of stability.

With Bitcoin holding its ground since July of this year, many experts are now predicting that the volatility which preceded Bitcoin’s leveling out has little chance of returning, as Bitcoin’s price shifting 5 percent in a day only once in the last month compared to more frequent higher percentage fluctuations in preceding months.

Some argue that this is a sign of Bitcoin “bottoming out,” others predict a bullish run is just around the corner. What most experts do agree on is that stability is good for the market and most likely a result of speculators falling by the wayside as chances of a quick profit on their investment seems unlikely. Bloomberg Intelligence analyst Mike McGlone sees this as the most likely scenario suggesting “High volatility is a major factor lessening most cryptocurrency use cases for anything other than speculation.”

Bitcoin’s price has reached unprecedented levels of stability during the latter half of October 2018, so far at least. After some volatility in the middle of October, the price of Bitcoin has settled into a narrow trading between USD 6,350 and USD 6,500. The daily volatility of Bitcoin fell below USD 100 on 19 October and continues to be below that threshold as of 26 October. This is the first time an entire week has had such low volatility since at least April 2017.

Charlie Morris, multi-asset head at Atlantic House Fund Management in London asserts that the bear market is coming to an end commenting, “It simply means the market is calm and in balance. That implies that speculative interest is low… Given this bear market is now 10 months old and is getting tired, I’d be inclined to be bullish for the next major move.”

Recent CBOE Global Markets data shows that the 20-day historical volatility of Bitcoin has fallen to 31.5 percent, lower than many major companies, including Amazon (35 percent), Netflix (52 percent), Nvidia Corp (4o percent) and Domino’s Pizza (36.2 percent).

Kevin Davitt from CBOE suggests that Bitcoin’s current status could be the flagship’s new standard position and therefore resistant to major change:

“Perhaps we are witnessing the maturation of a market. It’s far too early to declare this the ‘new normal’ but the persistent range over the last few weeks may be hinting at a structural shift. Time will tell.”

Danial Daychopan, chief executive officer of Plutus, suggests this is the after effect of the heady days of  speculation in 2017, and rather than a hangover, Bitcoin’s current stability is more of a leveling out, commenting that “the cost of the emotional traders has been washed away by the recent crash and with it a lot of the volatility.”

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Futures Expiration Causes Extreme Bitcoin Volatility

The Bitcoin market experienced extreme volatility on 19 September 2018, dropping from USD 6,330 to USD 6,100 (-3.6%) in an hour, and then rapidly rising to USD 6,550 (+7.4%) only half an hour later, before dropping again to USD 6,400 (-2.3%) in the next half hour before stabilizing. This rapid and isolated Bitcoin price volatility event coincided with the monthly expiration of Bitcoin futures contracts on the Chicago Board Options Exchange (CBOE), and it is likely that this was the cause of this volatility.

Thomas Lee, the Head of Research at Fundstrat Global Advisors, proposed that the expiration of monthly futures contracts on Bitcoin futures exchanges in Chicago leads to market volatility, particularly price drops. Lee found that on average, from six months of data, Bitcoin’s price drops 18% in the ten days leading up to futures contract expiration.

The mechanism behind this is traders use Bitcoin futures to create short positions, where they make money if Bitcoin’s price drops. Simultaneously they hold actual Bitcoins, and then sell these Bitcoins before futures contract expiration to drive Bitcoin’s price down, increasing their short profits. This volatility event on 19 September is good proof of this theory, since price crashed right before the futures contracts expired, suggesting someone in a short position was trying to drive spot price down at the last minute to make quick profits.

There are two potential reasons for the rally that quickly followed the crash. Perhaps once the Bitcoin futures contracts expired, the investors who sold their Bitcoins bought them back, driving price up. Additionally, the Relative Strength Index (RSI) briefly dropped below 30 during the crash, indicating oversold conditions, which is a relatively rare occurrence for Bitcoin. Other traders and investors who use the RSI to make decisions probably saw this and quickly bought Bitcoin during the time RSI was below 30.

The combination of futures traders buying back Bitcoin, and other traders buying Bitcoin due to the oversold RSI, actually drove RSI up to 68 for a moment, just below the overbought threshold. Some of the same traders who make decisions with RSI might have sold at this point, leading to the slight price drop back to USD 6,400.


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CBOE to Launch Ethereum Futures Pending CFTC Approval

The Chicago Board Options Exchange (CBOE) is planning on launching Ethereum futures trading, pending approval from the Commodities Futures Trading Commission (CFTC). The futures are projected to launch by the end of 2018, and will be based on Ether’s price on the Gemini exchange. This would make it the only cryptocurrency besides Bitcoin to have official futures trading in the United States.

CBOE is one of two exchanges that offer Bitcoin futures trading, the other exchange being the Chicago Mercantile Exchange (CME). Bitcoin futures trading launched in December 2017 and has become a popular crypto investment mechanism, with billions of dollars of Bitcoin futures contracts traded on CME every month.

Ethereum is probably the only other cryptocurrency that has any chance of getting approved for futures trading by the CFTC. This is because the Securities and Exchange Commission (SEC) has declared Ethereum is not a security since it is sufficiently decentralized and, therefore, falls under CFTC jurisdiction as a commodity. Out of the thousands of different cryptocurrencies, only Bitcoin and Ethereum have been officially given the green light to be traded without SEC approval.

Additionally, Ethereum has the second highest crypto market cap at USD 28.6 billion as of this writing on 31 August 2018, versus Bitcoin’s market cap of USD 120.7 billion. Ethereum has trading volume in excess of USD 1 billion per day, making it liquid enough to support institutional investment, a key factor for being compatible with futures trading.

The launching of officially-regulated Ethereum futures has both a downside and an upside. The upside is that this will give institutional investors a way to invest in the cryptocurrency on major stock trading platforms, and could generate positive speculation in the Ethereum market.

The downside is that Ethereum futures contracts will be derivatives that are backed by cash and settled for cash, instead of being backed by actual Ether, effectively making them paper Ethereum. When institutional investors buy contracts, it won’t increase spot demand or price, and actually will divert money away from the spot Ethereum markets long term. Therefore, Ethereum’s price long term will probably be lower than it would be if this paper Ethereum on the CBOE futures market didn’t exist.

This isn’t the first time paper Ethereum has been issued however, BitMEX recently began offering Ethereum derivatives trading. This could be worse than anything possible on CBOE since BitMEX traders can short Ethereum and even leverage their shorts 100x. The CEO of BitMEX ominously called Ethereum a shitcoin and says it will crash to below USD 100, from its current position near USD 300. He said this right after BitMEX listed Ethereum.


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Cboe President Still Hopeful for First ETF Approval

The race to receive the coveted spot as the first Securities and Exchange Commission (SEC) approved Bitcoin exchange-traded fund (ETF) continues and Cboe Global Markets Inc believes it still has a chance to make it.

Speaking to Bloomberg, Cboe’s exchange operator’s president and chief operating officer Chris Concannon said that it was a matter of working through the issues that concern the SEC before an ETF can be approved. He believes Cboe can achieve this but recognizes the growth of a strong Bitcoin futures market may mean that a futures-based ETF may come first, rather than an exchange for the cryptocurrencies themselves.

What Concannon sees potentially problematic here, however, is that a futures-based ETF has never been done before, and it could be a struggle to find enough liquidity. Futures trading volumes have remained low compared with commodities contracts such as gold, although an ETF would certainly prompt a significant increase in trades. The SEC is hesitant to approve such an ETF until futures trading can provide sufficient liquidity, however.

Concannon said that he had learned there have been more articles than volume, describing the amount of media attention the market gets compared to its size as ”shocking”. He noted that the entire cryptocurrency market was only a fifth that of multinational technology company Apple.

Cboe was the first company to usher Bitcoin into mainstream finance during its bullish run in December last year, offering futures contracts for the cryptocurrency. Many interpreted this as a signal Wall Street was turning in favor of Bitcoin, with an ETF finally becoming foreseeable.

The SEC cited the potential for market manipulation in the nearly entirely unregulated market as the primary reason to deny approval, as was the case in the Winklevoss brothers rejection. The SEC said that they would require a surveillance sharing agreement with a large Bitcoin exchange to ensure no manipulation is taking place, of which the Winklevoss Bitcoin Trust could not provide at the time.


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Wall Street Crypto Interest Continues as Fundstrat Accepts Bitcoin

Leading independent Wall Street research organization Fundstrat has announced that it is about to start accepting Bitcoin from global clients.

The trend in Wall Street currently seems split between joiners and leavers, those such as banking giant Goldman Sachs who, having listened to its client base, has demonstrated that it has seen the writing on the wall regarding cryptocurrency, and those leaving comfortable positions in banking to jump on the blockchain bandwagon wholeheartedly.

Those such as JP Morgan blockchain executives Amber Baldet who left to found her own decentralized app store and ex-vice president of Goldman Sachs who jumped ship to fire up a crypto asset management firm, both examples of the current lure of crypto and blockchain on Wall Street.

Fundstrat Global Advisers have decided to become joiners in its announcement that the firm will start accepting Bitcoin payments through Bitpay, the largest global blockchain payments provider. Reportedly, the organization is one of the few macro research firms to follow movements in the crypto environments and has decided to take the plunge. Managing Partner Thomas Lee commented on the move:

“Fundstrat found that accepting payments via BitPay is considerably simpler, faster and less expensive than bank wires… Bitcoin payments make it easier for our clients, particularly those outside the US, by offering more options to pay for our research services without having to deal with the hassles of currency translation.”

Its clients include institutional investors, wealth advisers, pension funds, and wealthy individuals requesting investment reports and profiles including cryptocurrency.

And it is not just Bitcoin that Wall Street is currently taking an increased interest in. Last month’s comments by SEC Director of Corporate Finance William Hinman that Ether wasn’t operating as a security has left its impact on New York’s financial hub, with CBoE’s president Chris Concannon declaring:

“We are pleased with the SEC’s decision to provide clarity with respect to current Ether transactions… This announcement clears a key stumbling block for Ether futures, the case for which we’ve been considering since we launched the first Bitcoin futures in December 2017.”


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CBOE President Says ICO “Reckoning” Due

The president of the Chicago Board Options Exchange (CBOE), Chris Concannon, says coming Securities and Exchange Commission (SEC) regulations for initial coin offerings (ICOs) will have catastrophic effects for investors and the market. He says “the reckoning will come in two waves” and “it should be keeping investors up at night”.

CBOE is the largest options exchange in the United States which facilitates the trading of over 1 billion contracts per year for 2,200 companies, 22 stock indices, and 140 exchange-traded funds. It was one of the first places to offer Bitcoin futures contract trading, so has expertise in the cryptocurrency world, while Chris Concannon is well known as a prominent cryptocurrency advocate on Wall Street.

Recent statements from the SEC indicate that most ICOs will be regulated as securities and must have proper clearance and licensing from the SEC in order to legally operate. Basically, any cryptocurrency that is created and sold for profit by an individual or organization, where investors expect a return on their investment, will be considered a security.

Concannon expects the SEC to take legal action against individuals and organizations conducting and investing in ICOs, and indeed this has already started with dozens of cryptocurrency firms subpoenaed this year. There will be severe consequences for anyone trading and propagating securities without a license. It is possible that the SEC could take retroactive legal action since security laws have been in place the entire time and, therefore, most of the ICOs in history have illegally raised funds by selling unregistered securities.

The result of this storm of lawsuits would be that ICOs considered unregistered securities could lose all of their value, which would cause investors to start suing each other and ICO teams for selling unregistered securities in an attempt to recover losses. A professor at Cornell University, Robert Hockett, said these lawsuits would have merit.

Between USD 5 billion and USD 7 billion has been raised by ICOs this year, and now the SEC will go through all these ICOs and decide which ones will be allowed to continue. This might be the beginning of the end for a lot of cryptocurrencies that were sold via ICO to United States citizens. As Concannon forecasts, there could be heavy legal consequences for many cryptocurrency investors, traders, and developers, as well as a significant negative impact on the overall diversity and market cap of the cryptocurrency market.

ICOs won’t be totally banned in the United States; perhaps some will successfully get SEC permission. This would require expenditure for fees and lawyers though, so ICOs will only be feasible for those with significant funding. Even worse, the SEC will be able to manipulate ICOs to change their platforms before granting permission, giving the government strong control over the evolution of blockchain platforms.


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CBOE Considering Ethereum Futures After SEC Decision

The President of the Chicago Board Options Exchange (CBOE), Chris Concannon says Ethereum futures could be available soon, following a decision from the Securities and Exchange Commission (SEC) that Ethereum won’t be regulated as a security.

The CBOE President says this decision gets rid of a major stumbling block that was hindering the path towards legally operating an Ethereum futures exchange, and that he is pleased with the SEC for making this clarification. Apparently, CBOE has been thinking about offering Ethereum futures trading since it first launched its Bitcoin futures exchange in December 2017. Bitcoin and Ethereum are the top 2 cryptocurrencies with market caps of 112 billion USD and 50 billion USD respectively as of this writing, 57% of the total cryptocurrency market cap of 281 billion USD.

The SEC provided some guidance for when cryptocurrencies can be defined as securities and when they do not meet the criteria. The Director of the Division of Corporate Finance at the SEC, William Hinman, said that any cryptocurrency which is sufficiently decentralized so no individual or organization is controlling it wont be considered a security. He explicitly stated that Ethereum is not a security and therefore is not under the jurisdiction of the SEC, making Bitcoin and Ethereum the only cryptocurrencies that have been given an all-clear by the SEC.

Ethereum prices rose from 480 USD to 520 USD following the SEC decision, and have since leveled off near 500 USD. The SEC decision is very positive news for the cryptocurrency world since now individuals and exchanges can trade Ethereum in the United States without an SEC broker-dealer license.

Bitcoin futures have been popular among institutional investment firms like Susquehanna International Group and may provide an avenue for institutional money to enter the Ethereum market. However, there is some concern that Bitcoin futures contract trading has damaged the market via manipulation, and that this same sort of manipulation could become an issue for the Ethereum market.

Bitcoin futures contracts can be used to short sell the market, where investors bet on the market going down and get more profit the lower the market goes. Thomas Lee from Fundstrat Global Advisors says investors might be selling lots of Bitcoin to crash the price in order to increase profits from their short positions. If this is true then the same sort of damaging manipulation would be possible on the Ethereum market after future contracts launch on CBOE.

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Bitcoin Futures Contracts Expiration Possible Cause of Market Volatility

The head of research at Fundstrat Global Advisors, Thomas Lee, says the expiration dates of future contracts may be a cause of market volatility and may be part of the reason Bitcoin’s price slid this past week.

Chicago Board Options Exchange (CBOE) Bitcoin futures contracts for June expired on 13 June 2018, and that same day Bitcoin dropped as low as USD 6,100 on Bitfinex. Lee says that Bitcoin drops on average 18% in the 10 days leading up to monthly futures contract expirations. So far there have been six future contract expiration dates since Bitcoin futures launched on CBOE in December 2017.

There were a couple of exceptions, in February 2018 Bitcoin price went up 15% as the expiration date approached, and in April 2018 Bitcoin’s price went up 16%. Lee says a more general observation is that there is significant price volatility, up or down, around Bitcoin futures contract expiration dates.

Lee found through his analysis that Bitcoin prices generally recover six days following contract expiration. Indeed, Bitcoin has recovered since the 13 June 2018 futures contract expiration from its low of USD 6,100 to USD 6,600 as of this writing, but has a ways to go before getting back to levels near USD 7,500 ten days before the contract expiration.

The possible logic behind Lee’s findings is that an investor who is holding a long Bitcoin position but shorting the futures may sell large amounts of Bitcoins as the expiration date approaches to minimize tracking error. Then the investor may sell all of their remaining Bitcoin, and if it’s a large enough sell it could cause the market to drop, which would increase the investor’s profits from their short position.

Bitcoin has billions of USD of trading volume per day, so it seems unlikely that investors trying to make profits shorting the futures markets would have enough money to drop global Bitcoin price. In any case, the Commodities Futures Trading Commission is investigating Bitcoin exchanges to see if any price manipulation related to futures trading has been occurring.

President and chief operating officer of CBOE Global Markets, Chris Concannon, says that the fall of Bitcoin’s price can be more easily explained by bad news and that the CBOE futures don’t have as much influence on the global Bitcoin market as Lee is saying.


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Moody’s, Fitch, S&P: Bitcoin Futures Considered Risky

The top three credit rating agencies, S&P, Moody’s and Fitch, said they consider Bitcoins future exchanges to be risky business, and that banks which clear Bitcoin futures contracts could have their credit rating downgraded if Bitcoin futures trading volume continues to grow.

The credit rating agencies assign letter grades to banks, corporations, and governments to indicate how likely they are to default on debts. The lower a grade a bank has, the harder and more expensive it is for them to obtain loans, limiting the amount of credit they can extend to clients.

Moody’s says Bitcoin futures contract clearing is considered credit negative since it exposes the bank to the volatile Bitcoin market, whether they are directly handling cryptocurrency or not. Volume is not enough to cause a credit rating decrease at this time, but if volume increases enough that will cause an increase of risk that will force agencies to assign a lower grade.

A Bitcoin futures contract is an agreement to buy or sell Bitcoin at a pre-determined price at a specific time in the future. This can be used by traders to manage their risk, since if the market drops they could sell their Bitcoins at a higher fixed rate that was agreed on in the futures contract regardless of how far the market drops.

This mechanism that can help manage risk can be used to profit from shorting the Bitcoin market too. The Bitcoin market has been in a sharp decline since futures contracts launched, making shorting quite profitable, to the point that a federal investigation has been opened up by the Commodities Futures Trading Commission to determine if futures trading has led to manipulation of the Bitcoin market. The initiation of the federal investigation and this announcement from the credit rating agencies regarding Bitcoin futures might be related.

Bitcoin futures contracts were officially launched in December 2017 and are now traded on the Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOE).  Trading volume of Bitcoin futures contracts has been increasing, with a record USD 670 million of daily volume on 25 April 2018. Futures are primarily traded by institutional investors, so increasing futures volume is a positive sign that institutional investors are putting more money into Bitcoin.

Bitcoin futures contracts are cleared by Options Clearing Corporation for CBOE and Clearport for CME, so this statement from the credit rating agencies is directed at these institutions, but also applies to any institutions that decide to facilitate clearing of Bitcoin futures contracts in the future.


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