Have bitcoin already has become a tradition every week to take new frontiers. And this time, bitcoin decided to close the week overcoming the new level of 19 000 dollars, almost getting to the next round figure of $20,000 per bitcoin. The movement is quite slow and is accompanied by periodic corrections, which indicates the uncertainty of the market. However, on a few dollar exchanges the exchange rate of bitcoin has exceeded $19 500 and the volume in cups to $20 000 small, so a large purchase quickly swept away the barrier.
The week began with the launch of bitcoin futures on the Chicago Board options exchange (CBOE), that drove the rate up to $17 000 on the same day. After that, the week was relatively calm and the ball was ruled altcoins. However, on Friday, the bitcoin came to life and resumed active growth. It is highly likely that this was due to expectations of the launch of futures on the CME, which will formally occur in the night of Monday Moscow time. In fact, bidding will begin on the morning of December 18, US Central time, or evening for the European part of Russia.
In addition, one of the reasons for the growth is considered to be the increased popularity of cryptocurrencies among the population of countries in Asia, including the Asian traders, who are moving EN masse from traditional markets in the cryptocurrency market. Many Asian cryptocurrency exchanges offer a 10-15-fold leverage. Add to this high volatility and potential profit in such exchange will be several times higher than most traditional markets. Potential losses can be so rapid and destructive, but when it stopped inexperienced traders?
However, Deutsche Bank analysts consider a negative scenario of development of events. Speculation in bitcoin has grown to such proportions that it can no longer be ignored. The Bank intends to explore the potential impact on the broader markets if the «bubble» of cryptocurrencies all the same burst.
The explosive growth has also affected the work of some of the major cryptocurrency exchanges. So, Cryptocurrency exchange Kraken has suspended the registration of new users. On the service there’s a major update to address a number of issues, which the exchange recently began to work very unstable.
For the last time on Kraken were registered, 50 thousand new users per day, number of simultaneous user service level and the daily volume of trading also reached a historical record. Because of this the team has to fight in order to cope with the workload.
Also, yesterday cryptocurrency exchange Bittrex has suspended the registration of new users due to the necessity of database update caused by a sharp increase in new registrations.
Against the background of rapid growth of cryptocurrencies, problems with stability arise from other sites.
Andreas Antonopoulos on futures on bitcoin
Andreas Antonopoulos Evangelist of bitcoin since 2012. About 9 months ago he was appointed to the Supervisory Committee of the CME Group — operator of one of the world’s largest commodity futures exchanges, which from December 18 to add to the listing of futures on bitcoin. The role of Andreas in the Supervisory Committee is to control which exchange will be used to determine price data used to establish current prices on the CME futures.
In a recent presentation, Antonopoulos talked about how the CME futures can affect the price of the cryptocurrency.
Bitcoin indices on the CME
As Andreas explained, in order for the bitcoin included in the lists of futures, should be formed two kinds of the reference rate (price) for cash:
the Reference index Real Time Index representing the spot price, which is updated every 30 seconds and is published on the traditional financial platforms including Bloomberg and Reuters;
index Point Price, or average price, as measured daily at 14:00 Central time USA. It is believed that Point Price is the price of bitcoin on the current day.
As the Reference Real Time Index and Price Point are used as the basis of legal contracts that are part of futures trading, and decide a dispute between parties that do not agree with the price of bitcoin at the time of signing the contract.
The internal mechanisms of the CME futures
Andreas explained the two different criteria used by CME to determine whether cryptocurrency exchange to be selected as the source of the price data of bitcoin. First, the exchange must publish real-time quotes, otherwise it will not be considered as a reliable source of information. In addition, the exchange must charge a Commission for trading. This is important because the platforms do not charge commissions, are susceptible to trading bots, which can create false volume.
In addition, the CME futures represent the market non-deliverable calculations, in other words, no one is the actual holder of bitcoin. In order to operated by CME futures on bitcoin, it is necessary that every short position had a corresponding long position. Both need to be capitalized in U.S. dollars. Customers CME need to have the software hosted and check daily. This gives customers the CME the right to open long and short positions not exceeding the amount of security.
Finally, the CME also has rules of temporary cessation of trading, the trade-impeding if the price of bitcoin falls or rises more than 7%.
Who benefits from play in the fall of bitcoin
For traders or investment bankers transactions for the fall of bitcoin is very risky, so for them, this scenario is unlikely. The most active participants of shorts can become the big miners. They can shorting bitcoin with minimal risk. The miners own the underlying asset (bitcoin) and they can make good money on short positions, with no risk. Extractive bitcoin miner must pay for electricity every month, regardless of how to change the price of bitcoin. However, if the price is much collapse, the miners will have to go out of business for lack of funds. According to Andreas, for short positions, the miners will use no more than 10% of their bitcoins. If the price of bitcoin will fall, miners will be able to recover the loss on falling prices and to pay current expenses.
If the price of bitcoin will rise, the miners, who played for a fall, will lose the positions of 10%, but will win by 90%. Thus, miners will benefit from a calculated short positions, and, most likely, they will participate in the decrease in futures to hedge against risks.
At the moment, the volatility of bitcoin is very high. The introduction of futures CME will lead to a significant increase in trading volumes and liquidity, which in turn will cause the General reduction of price volatility.