Fresh reporting on what amounts to one of the most eagerly anticipated events in bitcoin history – pending futures markets and contracts – suggests that some of the larger banks are less than thrilled at the prospect of offering such services to customers.
Futures Closed at Bank of America, Royal Bank of Canada, and Citi
For whales to get in on the bitcoin boom they’re going to need licensed and registered banks to approach markets created at the likes of Chicago Merc (CME), Chicago Board (Cboe), Nasdaq, and Cantor Fitzgerald in the coming days, weeks, and months. Gatekeepers at Bank of America Merrill Lynch (BAML), Citigroup Inc. (Citi), and Royal Bank of Canada (RBC) say they’re refusing, according to reports.
This could signal some coming hiccups on the road to bitcoin mainstreaming.
With bitcoin’s wild swings, crashes, and then swings back upward again, such volatility places broker liability in keen focus. Traditional markets require financial priests to guide laity to the promised land – brokers – and yet that broker can be on the hook for bad bets, which with bitcoin could be oodles of cash.
The easiest answer for big banks is the Boog Powell approach.
The lumbering, rotund first baseman for the Orioles was advised of his astonishing fielding percentage, a statistic not kept during his tenure. He ranks among the top defensive fielders in American baseball history; shocking most of all because he wasn’t exactly limber nor adroit at the position. The team just left him there due to his batting prowess.
“Well,” the anecdote has Boog laughing, “if you don’t try for the ball, they can’t exactly pin you with an error,” he’s often quoted. And that’s about right when it comes to the likes of RBC, Citi, and BAML. They’re fat and slow, weighted by decades of lobbying governments to regulate competitors, creating barriers to entry, and as a result they haven’t much tolerance for the sleek, shiny, nimbler world of decentralized ledgers and peer-to-peer permissionless money.
It comes down to counterparty risk and liability. If a client cannot cover, chances are no mainstream insurance product will make anyone whole. Pricing bitcoin is all but impossible, and that’s at least part of the futures experiment.
As has been documented, crypto exchanges hardly inspire confidence when it comes to scale. They too will have to set margins. Famously, Cboe and CME are asking at least 35 percent – this in a traditional market where percentages are routinely around 3 to 5.
Akin Oyedele writes “Goldman Sachs will clear bitcoin futures trading for some of its clients, according to a person familiar with the plans,” marking a decidedly dramatic turn of events.
“Goldman is still exploring.” Mr. Oyedele explains, “whether to play a role in other aspects of cryptocurrencies such as market making, the person said. Goldman will decide who gets to trade bitcoin futures on a case-by-case basis, the person said.” Goldman is the biggest futures broker in the United States.
Another reason for bitcoiners to be smug is because “Interactive Brokers Group Inc. will offer customers access to Cboe’s bitcoin futures, but only for so-called ‘long’ traders betting on a bitcoin price increase, Chief Executive Thomas Peterffy said in an email,” The Wall Street Journal noted.
Mr. Peterffy, readers might recall, took out a full page ad warning of bitcoin’s potentially disastrous impact on the economy.
How times have changed.
Tell us what you think in the comments below about Sunday’s bitcoin futures debut.
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