History is made as the CBOE (Chicago Board Options Exchange) launches the first ever Bitcoin futures market. It’s on a minor exchange mind you, the CBOE isn’t as big as the CME which is the Chicago Mercantile Exchange. On December 10, 2017, at 5 PM central, the first ever contract market was launched. You can find this on the CBOE.com website. On CBOE.com, we did a search for Bitcoin futures and got 3 results back.
It says 1/18, 2/18, 3/18 which is January 2018, February 2018, March 2018. Now the January 2018 is the only contract that has data right now. If you visit their website, this is the screen for it, it actually has some data coming through:
If you were to look this up yourself on CBOE.com the symbol is BTC/F8. If you consider that futures contracts were originally designed to aid manufacturers and farmers so that they could lock in prices for their goods and services, well goods in particular, like crops are unpredictable. The cost of steel and aluminum is unpredictable so you want to lock that in. You can see how futures can boost cryptocurrency adoption by allowing retailers who accept Bitcoin as payment, basically to buy insurance against the price of Bitcoin falling from the price falling.
So, say Dell receives $1000 worth of Bitcoin as payment today for a computer and a week goes by and Bitcoin price drops down 20% to $800 (for example), Dells in trouble. They’ve basically sold a computer for $800 when it should have been priced at $1000 and they’ll have a very carefully balanced pricing structure.
If they bought a Bitcoin futures contract paying a small fee for that, then they reserve the right to sell that Bitcoin for $1000 come the 26th of January, 2018 and the reason I say that, is because if we look back at the futures contract the expiration date on this contract is the 18th of January, so that’s when it comes due for delivery. So if the price of Bitcoin goes up in the meantime, in between Dell receiving the $1000 worth of Bitcoin and then the 26th of January, if it goes up in the meantime and ends up being worth more than $1000, says $1200, well they just choose not to exercise the contract. They just lose the insurance fee; it’s like not claiming on your insurance. So they just let it expire and then sell the Bitcoin on the real market for $1200, and of course, if it goes down they exercise the contract so that they don’t lose money.
Now that’s how it’s supposed to work but because these futures are cash-settled markets, Dell wouldn’t actually sell the Bitcoin on the open market, they would just receive the $200. So the Bitcoin would go down in value from $1000 to $800 but they would be compensated $200 in cash, to compensate them for that loss. They could then sell that Bitcoin for $800 and then make up that loss with the futures contract when it expires and they claim that.
So the question is, what happened to Bitcoin and alternative coins as a result of this? Well if we take a look below at Bitcoin prices against the US dollar, today it’s up quite a bit.
Yesterday, it was a bit erratic, there was a big trading range over the past several days, yesterday a very wide range indeed. It fell all the way to $12,730 on Bitfinex and it hit a high of $15,741 but it did go down to $12,730. That’s is quite low. That’s almost tickling twelve and a half thousand again.
Today, we opened up again pretty high, nearly $15,000 again and we’re back at $16,670.60.
In terms of what the rest of the market is doing, the last time we checked. As you can see from onchainfx.com, you have the top 20 all in green. The only loser, at the 21st position, FirstCoin is only down 2% but everything else is in single or double-digit gains. All the way down to the top 40 is in gains apart from Einsteinium which has been on a bit of a tear recently, now pulling back 20%. Other than that, pretty good across the part with Waves leading the pack today at a 26% gain with the biggest loser Einsteinium down 19%. Pretty good Euphoria going on there, the world didn’t end.
The CBOE website did crash after the futures markets opened and so did some of the other exchanges that it’s pulling their data in from. They’re relying on, well CME, is getting their prices from Coinjolt.com, Gemini, GDAX, and Kraken. Either way, there’s been a bumpy ride there along the way but everything is alright again