CME Group’s announcement that it indents to list regulated bitcoin futures contracts has some skeptics concerned that crypto derivatives will lead to a catastrophic economic event reminiscent of the 2008 financial crisis.
Tuesday morning, CME Group — the world’s largest regulated derivatives exchange — announced that it intends to list bitcoin futures contracts by the end of the year. The availability of these professional trading products will likely bring more Wall Street investors into the cryptocurrency ecosystem, and analysts believe that the Securities and Exchange Commission (SEC) will almost certainly approve an exchange-traded fund (ETF) that trades bitcoin futures contracts within the near future.
The CME announcement was a welcome surprise for cryptocurrency investors, many of whom were already celebrating bitcoin’s ninth “birthday” — the anniversary of the release of the original Bitcoin whitepaper. The bitcoin price quickly rose to a new all-time high, crossing a global average of $6,400 and extending as high as $6,450 on Bitfinex.
However, as CNBC reports, not all Wall Street investors are looking forward to the launch of bitcoin derivatives. In fact, some claim to see parallels between bitcoin derivatives and the collateralized debt obligations (CDOs) that contributed to the financial crisis of 2008.
“I have no problem with bitcoin. I like the concept,” said Joe Saluzzi, a principal at Themis Trading. “I have a problem that on Wall Street the innovators are trying to package something up and put a derivative label on it when they really don’t know what’s underneath. It reminds me of the financial crisis all over again.”
He explains that because the price of bitcoin exhibits significant variance across exchanges, bitcoin derivatives introduce significant risks to the market. Moreover, he says that because cryptocurrency trading remains largely unregulated, traders can employ market manipulation strategies with impunity.
“There could be spoofing, there could be layering, there could be all sorts of manipulation going on in bitcoin now, and nobody knows,” Saluzzi said. “Until they say they are watching and making sure there are no manipulations and fraudulent activities, until they say we have a better regulatory system, I think we are playing with fire.”
The real problem, Saluzzi continues, is the inevitable launch of Bitcoin ETFs. He says that while institutional investors should be aware of the risks they face by trading in bitcoin derivatives, retail investors will most likely invest in ETFs without a true understanding of the risks involved, perhaps believing that they are solid financial products since they are listed on regulated exchanges. “I think we are playing with fire,” he concluded.
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