Sunday, June 23, 2024

    A wild ride ahead for Bitcoin

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    This weekend has been a tumultuous one in crypto-land. With Bitcoin bouncing off of an all-time high of just over $18,250, and altcoins surging on Saturday, a different picture was being painted on Sunday. The bears were out in force and BTC lost over $5,000 in just over 48 hours. Volatile does not even come close to describing the current market as most coins are showing red negative numbers yesterday.

    The big slump may be connected to the launch of the Chicago Board Options Exchange futures contracts on Sunday. This will effectively allow traders to short Bitcoin and it looks like the digital avalanche has already started. Options Clearing Corp has set an initial margin requirement of 44% of the daily settlement price. This is huge compared to traditional commodities such as oil or gold. The rate has been increased from CBOE’s original 33% margin requirement as a result of the massive price swings Bitcoin has had this past week.

    It is currently trading around $16,500 which has recovered from a 25% drop on its peak late Friday/early Saturday. Massive swings of over 20% in both directions in such a short time are cause for concern for institutional traders and investors. The margin requirement for futures trading is the amount investors need to put aside as collateral so that other traders know that losses can be covered. One of the managing partners at Benchmark Investments stated that “One of the reasons why the futures margin requirements are so high is because of the limited size of the overall bitcoin market. There’s a lack of depth and breadth.”

    There is great concern that crypto currency trading risks have not been properly evaluated. This week the Futures Industry Association circulated a letter to regulators highlighting these concerns from the trade group of banks and brokers. Some of Wall Street’s biggest banks including Bank of America, JP Morgan Chase, Morgan Stanley, and Citigroup are still hesitant and will be holding back from offering clearing for Bitcoin futures contracts until the digital dust settles.

    Traders and investors are keen to get in on the action but are also hesitant for fear of going against management’s public stance on digital currencies. Whether the banking bigwigs fully embrace the technology or publically decry it as many have been doing recently they are all paying full attention to it now.

    The charts look like roller-coasters and the wild ride isn’t over yet for Bitcoin and its brethren.


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