After jumping out of the gate, the first bitcoin futures contracts to trade on a mainstream exchange stabilized on Monday at around $18,000 US.
The Chicago Board of Options Exchange started trading a bitcoin derivative contract on Sunday evening. The financial instrument allows investors to invest in — or against — the cryptocurrency without having to own it themselves.
A futures contract is an agreement to buy and sell something at a certain price, on a certain date. If the price of the futures contract is higher than the current price, that implies the buyer thinks the price in the real world will be higher by then, too, to justify the purchase. If it’s lower, that implies the buyer thinks the real price will be lower by then too.
The contract to deliver a bitcoin on Jan. 18 went live at 6 p.m. Sunday evening for $15,600, roughly the same price as an actual bitcoin was going for at the same time.
But the price of the contract soon jumped to almost $19,000 in the middle of the night.
As of the early morning, the future contract was holding steady at around $18,250. The February contract for bitcoin is barely higher, at $18,400, and in March it’s at $18,480.
The current price of bitcoin in real time, meanwhile, was $16,486, according to data compiled by Bloomberg.
That’s a spread of almost 11 per cent between the going rate and the future contract price — which implies that buyers of that contract think the price of bitcoin will be 11 per cent higher in January than it is right now. That’s well below some of the huge increases the cryptocurrency has seen in recent weeks.
“The one-month contract is trading at around an 11 per cent premium to the underlying bitcoin, and for me that’s a clear indication that there’s no connection between the two markets,” said Lukas Daalder, chief investment officer at Robeco.
“The premiums have so far been very high, demonstrating that few want to take the short side of the trade,” said Altana Digital Currency Fund manager Alistair Milne, who manages more than $35 million worth of assets in a cryptocurrency fund.
So far, the contract is also thinly traded. Nearing midday on Monday, only 3,251 contracts had been traded. That compares to hundreds of millions in daily volume for other future contracts that bet on what the price of things such as oil, stock markets, and commodities will be in the near term.
“I can understand you don’t see that many people who are willing to offer this contract, because you can’t hedge your underlying risk if you can’t short it,” Daalder said. “This only adds to the bitcoin phenomenon. It’s interesting to watch, but not a market that I would like to touch.”