CBOE Puts 44% Margin on Bitcoin Futures

Extra safety net put up under an asset both volatile and only partially regulated.

CBOE is releasing its new Bitcoin futures contracts today, a week before rival CME Group does the same. The release of Bitcoin contracts on two major American exchanges is a major sign of mainstream acceptance that has been at least partly responsible for the rapidly rising value of the coin this year.

However the same instability of price that makes the asset so attractive has also led to anxiety in the market. For this reason, CBOE is raising margin requirements from 33% to 44%, according to Bitcoinist.

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The safeguards include demanding at least 33% cash up front for each bet, and enforced trading breaks to be triggered if (when) the price of Bitcoin moves by more than 10% in a day, according to Barron’s.

This seems sensible – only this weekend, the price of one bitcoin surpassed USD 18,000, and exchanges struggled to cope with demand for the coin. Suspicions of market manipulation abound.

Criticism

The Futures Industry association has criticised CBOE and CME Group for lauching the contracts without adequate research. According to Bloomberg, FIA member firms have reservations about Bitcoin contracts due to price instability:

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“We remain apprehensive with the lack of transparency and regulation of the underlying reference products on which these futures contracts are based and whether exchanges have the proper oversight to ensure the reference products are not susceptible to manipulation, fraud, and operational risk.”

The Commodity Futures Trading Commission last week urged all related parties to put closely observe the behaviour of these new contracts, so as to avoid market manipulation.

A statement from the regulator said that “market participants should take note that the relatively nascent underlying cash markets and exchanges for bitcoin remain largely unregulated markets over which the CFTC has limited statutory authority… investors should be aware of the potentially high level of volatility and risk in trading these contracts.”

CBOE signed an agreement with Bitcoin exchange Gemini and announced the launch of Bitcoin futures in August of this year. Since then, Bitcoin has risen in value from USD 4,000 to just over USD 13,000 (at the time of writing).

Last month, CBOE CFA Russel Rhoads candidly stated “I don’t know” regarding the issue of Bitcoin futures pricing: “I’ve heard arguments for the futures trading at both a premium and a discount to the spot price, personally I think the best strategy is to see what the market tells us when bitcoin futures are available for trading.”

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