Bitcoin points to Wall Street if regulators are ready or not –

Bitcoin points to Wall Street if regulators are ready or not


(Bloomberg) – Two US exchanges, including the venerable Chicago Mercantile Exchange, are competing to adopt Bitcoin, dragging federal regulators into a realm that skeptics call a fad and a fraud.

The development shows how some large financial players are moving to co-opt the volatile cryptocurrency and attract more conventional investors to the market, even before regulators have agreed on what Bitcoin is.

The contracts of CME Group Inc. will be presented on December 18. Cboe Global Markets Inc. did not announce a start date. They both got the green light on Friday after going through a process called self-certification, a promise to the US Commodities Futures Trading Commission. UU That the products do not break the law. The news boosted the price of Bitcoin.

The measures are a milestone for Wall Street professionals – including institutional investors and high-speed operators – who have been eager to bet on cryptocurrencies and their extreme changes, but were worried about doing so. in mostly unregulated markets. New products are subject to CFTC supervision. CME, Cboe and Cantor Fitzgerald LP & # 39; s Cantor Exchange, which is creating another type of bitcoin derivatives, binary options, promised to help the agency monitor the underlying bitcoin market.

"Bitcoin, a virtual currency, is a commodity like no other the commission has dealt with in the past," CFTC President Chris Giancarlo said in a statement on Friday. "We expect futures exchanges, through information exchange agreements, to monitor commercial activity on the relevant cash platforms."

Read more: Bitcoin futures get back, do not stop the light of the guard dogs

Operating in bitcoin and other cryptocurrencies are not regulated to a large extent, and that's the point. Bitcoin was introduced in the wake of the 2008 financial crisis as a way to avoid governments and central banks. Now, with its meteoric rise and the proliferation of cryptocurrencies, banks, brokers and major investors want to participate. And they want regulation, something they will get in a market like CME or Cboe.

"The launch of the futures will in fact make the market healthier," Cboe president Chris Concannon said in an interview after the news was released on Friday. "It will create price equilibrium in the market, customers who have Bitcoin now have no way to cover their risk, these products allow them to protect themselves and take opposing views, and more importantly, it brings a wave of regulatory oversight."

Controllers fight

U.S. Financial regulators have struggled for years to come to an agreement on exactly what bitcoin is and what risks it could entail. That left their enthusiasts and financial professionals unsure of what government agencies might try to control the fast-growing market. In addition to the CFTC, there is the Securities and Exchange Commission, the Internal Revenue Service and the FinCEN of the Treasury Department, which monitors illicit payments.

The CFTC declared in 2015 that it would treat Bitcoin as a commodity. "But the IRS says it's owned, the SEC said that now a digital currency is a value and FinCEN says the digital currency is a 'monetary instrument'," said Adam White, general manager of GDAX, a cryptocurrency bag owned by Coinbase. His company is trying to work with all of them, he said, while offering his own definition: "It's a new badet clbad."

After Friday's announcement, exchanges and the CFTC will have to monitor that underlying market, according to Jeff Bandman, who until June advised President Giancarlo on financial technology issues.

"It is understood that bad actors can take actions in the spot market for a commodity where the reward or reward is the derivatives market and vice versa," Bandman, who now heads Bandman Advisors, said in an interview before the announcement. Friday "This would represent a new opportunity to make mischief."

Are the ETFs below?

There are other ways in which new futures could stimulate more aggressive supervision of the cryptocurrency. Contracts, for example, could facilitate the creation of an exchange-traded fund linked to bitcoin, even after a previous attempt was overthrown.

That could enlist the SEC. In March, the agency rejected a bitcoin ETF proposed by Tyler and Cameron Winklevoss, co-creators of the Gemini exchange, stating that the agreements necessary to share the surveillance were too difficult given that "the important markets for bitcoin are not regulated". Cboe is basing its future on the prices of Gemini.

On Thursday, a senior SEC official intervened. David Shillman, badociate director of the agency's trade and markets division, said a strong bitcoin futures market could make the regulator more comfortable in approving bitcoin ETFs.

Read more: Bitcoin's robust futures market can give the SEC comfort for ETF

Many conventional investors and their intermediaries, attracted by the meteoric rise of Bitcoin this year, would not bother with government oversight for avoid possible abuses. But the regulation of these futures only works so well if the underlying market is not safe.

"The problem with futures contracts is that they are regulated derivatives that are based on underlying transactions in unregulated markets," Richard Johnson, a market structure badyst at Greenwich Associates that specializes in blockchain, said before the announcement of the Friday. "That creates a potential problem."

Since digital currencies began to emerge, US regulators have faced a major dilemma: laws that empower control agencies and delineate their areas of responsibility were written decades ago when money was minted on paper. he resorted mainly to the stock market for capital, and the products came from farms, mines or wells. Many authorities have delayed, studying what to do.

CME CEO Terrence Duffy accelerated that process in October when he revealed his plan for futures. His announcement of an imminent product surprised some CFTC officials, according to three people with knowledge of the subject.

The problem among regulators is that each of them has roles with bitcoin, but there is very little coordination, said Justin Slaughter, former senior adviser to a CFTC commissioner who is now consulting on financial technology and regulation as a Mercury partner Strategies

"It has been very scattered, it has been somewhat confusing," he said.

© 2017 Bloomberg L.P.

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