The mad frenzy that was Bitcoin at the turn of the calendar year has not evolved quite as expected. The cryptocurrency enthusiasts sat glued to their computer screens anticipating the start of trading on the Chicago Board of Options Exchange (Cboe) at 5:00 o’clock central on December 10th.
This was the climax of nirvana pursuant to the Cboe’s statement in August of 2017 that it planned to start trading Bitcoin. The underlying Bitcoin itself hit highs near $20,000 and any business remotely associated with blockchain was said to be the next “internet” boom. So what happened?
It’s not really a mystery as to what happened. Investors got what they wanted in having Bitcoin come out of the dark, so to speak, and trade on regulated markets on the Cboe and the CME Group. No longer did you have to worry about your exchange being hacked or other nefarious dealings in the crypto pools. The idea was that this would bring mainstream investment in the form of big financial institutions into the Bitcoin market.
This has not happened yet, and according to Goldman Sachs, it may never. Goldman Sachs has been clearing bitcoin-linked futures contracts offered by the CBOE and CME since May, and is providing clients liquidity for those futures. As for physical bitcoin, Goldman is not quite there. There needs to be a safe custody solution before the bank can move forward, the bank’s CFO said.
As the chart depicts, from the onset of trading the volume has steadily declined, with the exception of a few volatility spikes. In the interest of fairness, and speaking of volatility, the VIX futures were not met with immediate fame. VIX futures, which Cboe introduced in 2004 and which allow traders to bet on the volatility of the stock market, took a long time to claim success, says Brad Koeppen, head of crypto trading at CMT Digital. Koeppen adds that the Bitcoin futures will get there eventually, it just takes time. Goldman Sachs begs to differ. Its investment strategy group created a report this summer that suggested for several reasons that Bitcoin “will never come back.” Chief investment officer Sharmin Mossavar-Rahamani said, “We expect further declines in the future given our view that these cryptocurrencies do not fulfill any of the three traditional roles of a currency: they are neither a medium of exchange, nor a unit of measurement, nor a store of value.”
With anemic interest in Bitcoin futures, it is interesting that the Cboe is considering another futures product based upon the cryptocurrency Ether. The exchange began publishing a price index for Ether, something it also did for Bitcoin, a harbinger of those futures contracts. One would think this might be reconsidered unless Bitcoin futures have some sort of rebound. Craig Pirrong, a finance professor at the University of Houston and an expert on futures trading, sums up the state of affairs pretty well. “It has to become a more mainstream asset class, as opposed to the rather fringe part of the financial markets that it is today,” he says. “If I knew whether that was going to happen, I’d probably be on a yacht drinking mai tais.” Wouldn’t we all professor.