European Central Bank warns about speculative frenzy surrounding bitcoin

Tech exchange Nasdaq to run out bitcoin futures in coming months

PUBLISHED : Thursday, 30 November, 2017, 4:03am
UPDATED : Thursday, 30 November, 2017, 4:08am

The vice-president of the European Central Bank on Wednesday expressed concern about the relentless rise in value of the virtual currency bitcoin and the potential risk accompanying the trend.

“It’s a very particular asset, it’s a speculative asset by definition looking to the developments in its price. Investors are taking that risk of buying at such high prices,” Vitor Constancio said.

Bitcoin smashed through the US$10,000 barrier this week – compared with less than $1,000 this time last year. The rise has taken the overall market capitalisation of hundreds of so-called cryptocurrencies beyond US$300 billion as demand for digital currencies soars.

Despite his warning, Constancio said he did not think bitcoin’s extreme volatility would spread to other markets.

ECB President Mario Draghi said last October it was too early for the ECB to consider regulating virtual currencies.

Russia’s central bank has also notably warned of the potential losses investors may suffer if they put their hard cash into cryptocurrencies.

The boss of JP Morgan Chase has labelled bitcoin a fraud, while China has closed down bitcoin trading platforms and South Korea this week expressed concern the trend could lead young investors to become embroiled in fraud.

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Even so, the virtual coin received a major boost last month when exchange giant CME Group announced it would launch a futures marketplace for bitcoin, which has not been listed on a major bourse before.

Now Nasdaq is charging into the race to bring bitcoin to a greater swathe of investors.

The New York-based exchange operator plans to introduce bitcoin futures next year, according to a person familiar with the matter, becoming the third major US exchange to dive into the red-hot market for cryptocurrencies.

Nasdaq will introduce the products as early as the second quarter, and the contracts will trade on its NFX market, according to the person, who asked not to be named discussing a private matter.

The plan is yet another sign of a large exchange operator pushing bitcoin further into the mainstream investing universe. The offering will pit Nasdaq against two bigger competitors, CME Group and Cboe Global Markets, both of which already announced plans to offer cryptocurrency derivatives.

Nasdaq is a comparatively small player in the futures market, which may make it harder to cultivate an image as a destination for cryptocurrency derivatives trading.

“They’re a small futures exchange, so they possibly see the potential to get into a product that could be much larger some day,” said Rich Repetto, an analyst at Sandler O’Neill&Partners LP.

The strategy means that New York Stock Exchange owner Intercontinental Exchange is the only one of the four major US exchange operators without public plans to offer bitcoin derivatives.

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One way Nasdaq seeks to differentiate itself seems to be in the amount of data it uses for pricing the digital currency contracts. VanEck Associates Corp, which recently withdrew plans for a bitcoin exchange-traded fund, will supply the data used to price the contracts, pulling figures from more than 50 sources, according to the person.

That appears to exceed CME’s plan to use four sources, and Cboe’s one.

Nasdaq’s contracts will be cleared by Options Clearing Corp, the person said.