The crypto currency boom opened a new chapter on Monday with the start of trading bitcoin futures on the CBOE Chicago Stock Exchange. The price for a contract with the delivery in January started from $15.460, but soon it soared to almost $ 19,000. The volume of contracts almost reached 3000 at the time of writing the article.
The pricing of futures proved to be too erratic and arbitrage-rich. CBOE data show that with the increase in time of settlement, the settlement price first grows to $ 18,000, and then falls to $16,400, while the futures price remains virtually unchanged for the February and March contracts. In fact, the market expects a pullback of the price from about 20,000 to $ 16,000 in January-February, before bitcoin may start to rally again.
According to the data it is clear that the premium for the 3-month contract in March reached $ 2,670. In essence, this means that an investor can borrow money, buy a crypto currency, sell a three-month futures at $19,100 and take profit of $ 2,670 now, repay the loan in three months. However, the availability of arbitrage opportunities is likely due to low liquidity on the stock exchange. Since the launch of the auction, only 50 of 3-month contracts have been made, and the premium will likely decline in the future.
Large US banks, such as JPMorgan Chase & Co and Citigroup Inc. are yet to decide on the approval of transactions related to bitcoin futures. This is explained by the fact that the status of the cryptocurrency is not clear, the demand of institutional investors is small, and the impact on reputation in the event that the bubble bursts can be very unpleasant. However, Goldman Sachs Group Inc. said that it will allow customers to conduct such transactions, but each case will be considered individually.
Despite the launch of futures trading, Central Bank executives continue to criticize cryptos. The head of the New Zealand Central Bank said on Sunday that bitcoin is a classic bubble, and it is impossible to predict the time of its life. Nevertheless, the regulators' concern is probably connected not with threats of financial stability, but with the reputation of the Central Bank as a supervisory authority that must protect unqualified investors from risky investments. Moreover already 40% of the volume of all bitcoins are only in 1000 hands, so while they are interested in the growth and maintenance of the stability of the crypto currency, a strong collapse is unlikely.
Tightening cycle
This week, decisions on monetary policy should be taken by Central Banks of the four leading economies of the world - the ECB, the Fed, the Bank of England and the Swiss Central Bank. Hints in policy tightening suggests that regulators saw signs of a comprehensive rally in the global economy which should be smoothed out with the hikes in the borrowing costs.
The dollar is trading with minor loss, the largest losses from the major currency pairs are carried by GBPUSD, continuing the steep decline started on Friday. Bounced from the 1.35 level last week, the pair declined to 1.3350, as a discord surfaced again in the negotiations between Brussels and London on the divorce deal. Nevertheless, the downward movement could be dictated by the need to fix profits and the news on progress in talks will allow the pair to resume the offensive again.
Arthur Idiatulin
The pricing of futures proved to be too erratic and arbitrage-rich. CBOE data show that with the increase in time of settlement, the settlement price first grows to $ 18,000, and then falls to $16,400, while the futures price remains virtually unchanged for the February and March contracts. In fact, the market expects a pullback of the price from about 20,000 to $ 16,000 in January-February, before bitcoin may start to rally again.
According to the data it is clear that the premium for the 3-month contract in March reached $ 2,670. In essence, this means that an investor can borrow money, buy a crypto currency, sell a three-month futures at $19,100 and take profit of $ 2,670 now, repay the loan in three months. However, the availability of arbitrage opportunities is likely due to low liquidity on the stock exchange. Since the launch of the auction, only 50 of 3-month contracts have been made, and the premium will likely decline in the future.
Large US banks, such as JPMorgan Chase & Co and Citigroup Inc. are yet to decide on the approval of transactions related to bitcoin futures. This is explained by the fact that the status of the cryptocurrency is not clear, the demand of institutional investors is small, and the impact on reputation in the event that the bubble bursts can be very unpleasant. However, Goldman Sachs Group Inc. said that it will allow customers to conduct such transactions, but each case will be considered individually.
Despite the launch of futures trading, Central Bank executives continue to criticize cryptos. The head of the New Zealand Central Bank said on Sunday that bitcoin is a classic bubble, and it is impossible to predict the time of its life. Nevertheless, the regulators' concern is probably connected not with threats of financial stability, but with the reputation of the Central Bank as a supervisory authority that must protect unqualified investors from risky investments. Moreover already 40% of the volume of all bitcoins are only in 1000 hands, so while they are interested in the growth and maintenance of the stability of the crypto currency, a strong collapse is unlikely.
Tightening cycle
This week, decisions on monetary policy should be taken by Central Banks of the four leading economies of the world - the ECB, the Fed, the Bank of England and the Swiss Central Bank. Hints in policy tightening suggests that regulators saw signs of a comprehensive rally in the global economy which should be smoothed out with the hikes in the borrowing costs.
The dollar is trading with minor loss, the largest losses from the major currency pairs are carried by GBPUSD, continuing the steep decline started on Friday. Bounced from the 1.35 level last week, the pair declined to 1.3350, as a discord surfaced again in the negotiations between Brussels and London on the divorce deal. Nevertheless, the downward movement could be dictated by the need to fix profits and the news on progress in talks will allow the pair to resume the offensive again.
Arthur Idiatulin
This analysis is provided as general market commentary and does not constitute investment advice. Past performance is not indicative of future results
