Rush is on as 'Fear Of Missing Out' kicks in before Bitcoin hits Wall Street
Ahead of the start of futures trading on Sunday, the cryptocurrency was up almost a third on the week. Since the start of October, bitcoin has more than tripled in price.
Speculators rushed in to buy up bitcoin last week, driving it to record levels close to US$20,000, as they feared missing out on what is expected to be a watershed for the cryptocurrency on Sunday, when one of the world's largest regulated exchanges begins futures trading of the digital currency.
The Chicago-based CBOE Global Markets exchange is expected to launch a bitcoin futures contract, to be followed by CME Group the next week. This is a watershed for bitcoin because many professional investors have been unwilling to do business on the unregulated platforms where it currently trades. The CBOE and CME are regulated, potentially assuaging those concerns.
Last week saw a frenzy as the price of bitcoin went on a wild ride as more than half a million new users opened wallets with retail-focused bitcoin wallet provider Blockchain, the firm said, doubling the total number of users to 20 million since last year. The software application for Coinbase, operator of one of the world’s largest digital currency exchanges, climbed to the top of Apple’s download ranking for free apps in the US on Thursday. On the same day, on Coinbase’s GDAX exchange, prices zoomed up to almost $20,000 from $16,000 in about 90 minutes, before sinking back down.
For the week, bitcoin was still up almost a third. Since the start of October, bitcoin has more than tripled in price. So far this year it has soared about 15 fold, stoking concerns that the bubble would burst in dramatic fashion. Its rapid rise has drawn in millions of new investors.
"Like a herd, market participants have a tendency to follow the money," Fawad Razaqzada, market analyst, at Forex.com in London, told Reuters. "So when bitcoin goes up in value by hundreds, if not thousands, of dollars per day, the fear of missing out (FOMO) kicks in and speculators rush to buy the cryptocurrency because they don’t want to be left out."
Still, there is a concern that the volatility of bitcoin prices indicate that there is a crash on the way. It lost almost a fifth of its value in 10 hours on Friday, having surged more than 40 per cent in the preceding 48 hours. In a hectic day on Thursday, bitcoin leapt from below US$16,000 to $19,500 on GDAX, while it was still changing hands at about $15,900 on the Luxembourg-based Bitstamp. Having then climbed to $16,666 on Bitstamp at around 0200 GMT on Friday, it tumbled to $13,482 by around 1200 GMT - a slide of more than 19 per cent. It was last down 8.2 per cent at $15,232.32 on BitStamp.
Craig Erlam, senior market analyst at OANDA in London, told Reuters on Friday that investors may have taken profits on bitcoin gains ahead of the CBOE launch, which could open the door to short speculators who believe the price has risen far too quickly.
"The initial bounce after this morning's sell-off suggests there's still appetite for buying dips but that may not last if we don't see the kind of rebound witnessed previously," said Mr Erlam. "Saying that, the way bitcoin is trading at the minute, I don't think anyone would be surprised to see it end the day in the green," he added.
As investors braced for the CBOE launch, some big US banks, including JP Morgan Chase and Citigroup, will not immediately clear bitcoin trades for clients once investors start trading futures contracts, the Financial Times reported on Friday.
On Thursday, Goldman Sachs said it planned to clear bitcoin futures for some clients as the new contracts go live on exchanges in the coming days. As bitcoin slumped, other cryptocurrencies climbed. Ethereum the second-biggest, was up nearly 8 per cent, according to trade website Coinmarketcap.
White House economic adviser Gary Cohn said he and other administration officials are monitoring the meteoric rise in bitcoin, while adding that he didn’t see any serious threat in the phenomenon.
“We’re watching it, of course we’re watching it,” Mr Cohn, the former president of Goldman Sachs, said on Friday in an interview on Bloomberg Television. “Right now we don’t think it’s a serious risk, but right now we’re watching it.”
Asked if any new regulation might be required, Mr Cohn noted that the Commodity Futures Trading Commission had already approved bitcoin futures contracts.
“We’ll see what goes on here,” he said. “It’s an evolving market. We’ve watched this happen before as markets have evolved.”
A letter last week, from the Futures Industry Association, said the CBOE and larger exchange operator CME are rushing the futures to market without a proper consideration of the risks. The trade group, made up of some of the world’s largest derivatives brokerages, said it was concerned that the cryptocurrency’s extreme volatility could lead investors to default if prices swing. That could sting firms that clear the contracts.
Updated: December 9, 2017 01:20 PM