The Commodity Futures Trading Commission is set to meet this October to discuss its jurisdiction over bitcoin futures. Through its Global Markets Advisory Committee, the CFTC will have a meeting with two panels, all of which will be open to the public. The meeting will take place on October 9th, 2014 at the CFTC Headquarters in Washington DC.
The upcoming meeting marks the first time that the regulator is publicly wading into the area of bitcoin regulation. There has been a growing demand for bitcoin futures from global merchants, miners and hedge funds for an efficient hedging tool. In March 2014, TeraExchange through an affiliate launched the first unregulated swap execution facility. The company followed up on this by launching a regulated Bitcoin Derivatives and Price Index earlier in September 2014.
Bitcoin Futures and other Derivatives – A Brave New World
Derivatives are financial instruments whose value is determined by or derived from an underlying asset. Traditionally, underlying assets have included stocks, bonds, commodities, currencies, interest rates and market indices. Bitcoin derivatives are therefore an exciting new area for the crypto-currency. It is an additional marker that the digital currency has matured to the point where mainstream financial markets are beginning to take notice.
The use of bitcoin as an underlying asset holds promise for the digital currency. Wide price fluctuations have been a thorn in the side for bitcoin. On some trading days, the currency has appreciated or depreciated by as much $50 or even $100. With the currency going mainstream, it is likely to stabilize the value of bitcoin, in the short-term even as the currency looks forward to a stabler and more valuable future.
Bitcoin and Regulation
Bitcoin has a very prickly relationship with any regulation. This thorny relationship is embedded as it were in its “DNA,” so to speak. The currency is decentralized and is, therefore, not part of the formal banking system. The founder or founders of the currency are still unknown. The principal method of earning bitcoins is still too techie for the general public and the larger bitcoin community jealously protects the currency against unwarranted regulation.
There have been previous attempts at regulating bitcoin in the US. The Department of Financial Services in the state of New York came up with the bitlicense not too long ago, which prompted severe backlash from the bitcoin community. The regulator also decided to have public hearings so as to determine the best way to go about regulation of bitcoin in New York.
The upcoming public hearing in October is bound to generate heat and hopefully some light too. The CFTC is the body mandated under law to regulate all types of derivatives including futures. The principle law that governs derivatives in general is the Dodd-Frank Act enacted by Congress in 2011.
With Bitcoin becoming much more mainstream, a fierce battle will ensue to keep the currency as lightly regulated as possible. The question that now emerges is what kind of trade-offs will have to be made in the future? In the meantime, to some in the bitcoin community, the government seems to have made the opening gambit.
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