(BBC)– Bitcoin has begun trading on a major exchange for the first time.It launched on the CBOE futures exchange in Chicago at 23:00 GMT Sunday, allowing investors to bet on whether Bitcoin prices will rise or fall.
In the lead-up to its futures debut, the value of the digital currency has surged.Bitcoin’s introduction to the CBOE has been seen by some as a step towards legitimising the currency.
The move is expected to be followed next week by a listing on the rival Chicago Mercantile Exchange.CBOE trading saw the Bitcoin futures contract expiring in January rise 17% from $15,000 to above $18,000.
What are futures?
Futures are contracts that allow investors to bet on the price of something at a future date.Investors can now bet on Bitcoin rising or falling in price without actually owning them.Futures are typically based on the price of a real commodity – such as oil.
One of the controversial aspects of Bitcoin is that some do not see it as a “thing”. Although it is called a currency, it can be argued it is an asset, or commodity, without any actual use or real assessable value.
An exchange insider said its start was low key, with “no champagne”. However, CBOE tweeted to warn that its website was running slowly and could be temporarily unavailable.
Anticipation of the first mainstream listings have helped the controversial currency soar past $10,000 and then over $17,000 on Thursday before retreating. The price of Bitcoin stood at about $16,600 on Monday, according to Coindesk.com.
Nick Colas, of Data Trek research, said the futures listings gave Bitcoin “legitimacy – it recognises that it’s an asset you can trade”.
Chris Ralph, chief investment officer at St James’s Place told the BBC’s Today programme that he remained cautious about the currency.
“I refuse to use the word legitimate, but it’s probably moved out of the shadows into the open,” he said.
“But what I think it means is more people in the conventional investment banking market will take a look at Bitcoin.
“It has been described as the asset class of 2017 but when we went into the year no one would have called it an asset class.”
What is Bitcoin?
- It is a digital “alternative” currency that mostly exists online and is not printed or regulated by central banks
- Bitcoins are created through a complex process known as “mining” and then monitored by a global network of computers
- About 3,600 new Bitcoins are created each day, with about 16.5 million now in circulation
- Like all currencies, its value is determined by how much people are willing to buy and sell it for
The CBOE and CME launches were made possible following approval by the US Commodities and Futures Trading Commission (CFTC).
However, the regulator has warned investors about the “potentially high level of volatility and risk in trading these contracts”.
Its supporters include the Winklevoss twins, who have been called the first Bitcoin billionaires, while critics include CNBC financial commentator Jim Cramer.
He argues that futures trading opens the door to “short sellers” that bet on downward moves in asset prices.Bitcoin is not regulated by any country’s central bank and has no universally recognised exchange rate.
CBOE says trading will be suspended for two minutes if Bitcoin prices rise or fall by 10%, in an attempt to reduce wild fluctuations.
“We are committed to continue to work closely with the CFTC to monitor trading and foster the growth of a transparent, liquid and fair Bitcoin futures market,” CBOE said.
The Futures Industry Association, which includes some of the world’s biggest derivatives brokerages, has criticised the CFTC’s decision, arguing that insufficient attention has been paid to the risks involved.