"Whether it's a fraud, whether it's a bubble, whether it's legitimate ... you will be able to express all of those thoughts in a transparent marketplace," said Ed Tilly, chief of the Cboe which launched Bitcoin futures on Sunday.

Bitcoin (virtual currency) on US dollar banknotes, next to a computer keyboard.
Bitcoin (virtual currency) on US dollar banknotes, next to a computer keyboard. (Reuters Archive)

Bitcoin experienced some big swings but finished higher in its debut on a major exchange on Monday, while a leading US securities regulator warned investors about the risks of cryptocurrencies.

Bitcoin futures for January delivery finished at $18,850.00 near 2115 GMT on its first full day of trading, a bit below session peaks but soaring well past the $15,000 initial price when Cboe launched the platform on Sunday night.

The Cboe launch marked the first opportunity for professional traders to invest in Bitcoin on a traditional platform and is expected to be followed in a week by a rival listing on Chicago Mercantile Exchange.

Active interest

The Cboe said at least 20 trading firms "actively participated" in the first day of trading, without giving specifics.

Volume of the Bitcoin futures was relatively low, trading less than 4,000 contracts compared with the tens of thousands that typically trade for more popular commodities like oil, gold, or wheat, or the hundreds of thousands of contracts for popular stock-based futures like the S&P 500.

The Cboe futures don't involve actual Bitcoin. They allow investors to make bets on the future direction of Bitcoin. Monday's futures price indicates investors expect Bitcoin to keep rising in the coming weeks, although at a slower pace than seen recently.

The futures price was about eight percent higher than the price of $17,100 quoted for Bitcoin on the large private exchange CoinBase late Monday afternoon.

Bubble or maturing market?

But with the surge of interest has come concerns about the Bitcoin market being in a bubble. In an interview on business network CNBC, North American Securities Administrators Association President Joseph Borg said he observed some people taking out mortgages on their house to buy Bitcoin.

While Bitcoin has a vocal group of true believers, it also attracts its fair share of detractors. JPMorgan Chase CEO Jamie Dimon has called Bitcoin "a fraud."

Thomas Peterffy, chairman of the broker-dealer Interactive Brokers Group, expressed deep concerns about the trading of Bitcoin futures last month, saying "there is no fundamental basis for valuation of Bitcoin and other cryptocurrencies, and they may assume any price from one day to the next."

But there is some hopes that bringing Bitcoin to a public exchange like the Cboe or the Chicago Mercantile Exchange will bring some regulation or legitimacy to the world of cryptocurrencies.

"The next immediate things we will see with the futures is more predictable price movement and less volatility," said Emin Gun Sirer, a professor at Cornell University who studies digital currencies like Bitcoin.

There have been other attempts to bring Bitcoin investing into the mainstream. Tyler and Cameron Winklevoss, twin brothers who own large amounts of Bitcoin, tried to create an exchange-traded fund based on bitcoin, but federal regulators denied their application. The Winklevoss twins run Gemini, however, the exchange the CBOE is using to price its Bitcoin futures.

Cboe's rival exchange CME will start trading its own futures on December 18 but will use a composite of several Bitcoin prices across a handful of exchanges.

Concerns over cryptocurrencies

Still, in a sign of the unease generated by meteoric rise of Bitcoin, the top US securities regulator Monday cautioned investors on the risks of cryptocurrencies and "initial coin offerings," a major fundraising tool of new currencies.

"Investors should understand that to date no initial coin offerings have been registered with the SEC," said Jay Clayton, chairman of the US Securities and Exchange Commission. "If any person today tells you otherwise, be especially wary."

"I encourage Main Street investors to be open to these opportunities, but to ask good questions, demand clear answers and apply good common sense when doing so," Clayton warned.

Many major banks stayed out of the Cboe trading and have generally kept their distance from Bitcoin, the most prominent of a plethora of emerging cryptocurrencies.

Cboe chief Ed Tilly called on critics of the virtual currency to express their skepticism in the market.

"Whether it's a fraud, whether it's a bubble, whether it's legitimate ... you will be able to express all of those thoughts in a transparent market place," Tilly said hours after the trading launch.

Bitcoin's Cboe debut, while largely uneventful, once again showcased its penchant for volatility as the exchange was forced to suspend trading twice due to major price swings. But Tilly said that indicates the exchange was operating as intended.

The exchange set a policy requiring such halts due to major price moves, for example requiring a five-minute suspension due to a 20 percent move.

"So we hit those barriers on price movements and we did halt according to plans," Tilly said. "All things operated as they should."

Bitcoin or blockchain?

Bitcoin's breakthrough is the latest in a spectacular run for the online money dubbed "digital gold" by its advocates, which began life in 2009 as a bit of encrypted software supposedly written by an unknown coder with a Japanese-sounding name.

What began as the preserve of computer nerds and financial experts has gained a broader following among those seeking alternatives to traditional investments, and now can be used to pay for a pint in a London pub or a manicure, as well as to invest in startup ventures, and its valued has soared in recent weeks.

Investor interest has also risen in other digital currencies, such as ethereum, ripple and litecoin, which employ the same "blockchain" software foundation as Bitcoin.

"The level of interest is unbelievable," said Timothy Enneking, founder and the primary Principal of Crypto Asset Management, an asset and fund management company that created a digital currency index.

"We get dozens of people contacting us each day to know how to invest in cryptocurrencies and we don't even do any marketing."

Fidelity Labs, part of the giant Fidelity Investments, has been active in Bitcoin for four years, said managing director Hadley Stern.

"It really started with our executive team starting to see what was going on in Bitcoin," Stern said.

"And then we became very interested in the underlying blockchain technology. The root of it was this transformational ability to transfer value from software to software alone."

Source: AFP