Bitcoin Futures Flat as Contracts Move Short and Merrill Lynch Imposes Ban

The Commodity Futures Trading Commission (CFTC), the industry’s main regulatory arm, reports a net increase in short contracts; volume is sluggish, and a legacy bank has now outright forbid clients and advisers from trading in the relatively new product. While it is too early in the experiment to draw definitive conclusions, bitcoin futures might not be the boost enthusiasts hoped.

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Bitcoin Futures Present is Less Than Encouraging

CFTC end of 2017 reporting noted Chicago Board Options Exchange (Cboe) bitcoin futures broke for short contracts, up by nearly 300 in the final week of last year. Analysts believe bubble talk consumed traders, triggering a selloff.

A raised net short position wasn’t expected by most bulls heading into the history market. It isn’t clear what the trend means longer term, but a thirty percent spot price correction was already in the works during 2017’s final weeks which certainly didn’t help matters. Overall, the world’s most popular cryptocurrency finished the year up well-over one thousand percent.

The run-up to crypto futures was maddening in financial terms, as speculators even turned to margin in order to ride price waves – a metric many were sure was only on the way up. Such turned out to be a bad guess, and by a lot. Some analysts believe it was a necessary shaking out of more irrational investor spirits, paving the way for serious institutional firms once they realize the epoch altering technology bitcoin and its network represent.

Peter Tchir details how Cboe open interest lagging at the end of the year has “barely risen from where it ended its first week (1,730 contracts). The CME’s contract has finished its first two weeks with open interest of only 498 contracts (the CME contract does represent 5 bitcoins so is 5 times as large as the Cboe contract),” he writes in Forbes. Underlining the feelings of a lot of bitcoin bulls, he explains “given the amount of hype surrounding bitcoin and how this product would promote new access – the numbers seem very low. I cannot remember a futures contract that launched with more awareness than these contracts,” he lamented.

Best Day = Worst Day

Volume for contracts is also low, even considering the holidays. Bitcoin was supposed to defy those conventions anyway. And when contract volume was at its highest on December 22, 2017 – a day was later renamed Freaky Friday, Flash Friday, and FUD Friday. Prices nose-dived thousands and are still in the process are trying to recover. If this is a sign, it’s not a good one.

The loss of bitcoin market share, while at times a poor indicator of overall health (the number can be manipulated), it tells veteran analysts investors are less interested in bitcoin proper and are more apt to search for the next discounted big thing. Mr. Tchir ends his thought with what he terms “the rush to buy ‘the cheapest’ cryptocurrencies. Who wants to buy X Bitcoins when you can buy a multiple of X of another cryptocurrency?”

Again it is still very early, but institutional investment firms are also starting to overtly and openly pull back from bitcoin. The Wall Street Journal learned Bank of America’s brokerage division, Merrill Lynch, issued an all-out ban. Neither clients nor its over fifteen thousand advisers can use its platform for bitcoin.

The policy, announced around the time futures were set to go live, also puts a pin in Grayscale Investment Trust’s bitcoin fund offering – a popular choice among retail investors who’d rather not bother with e-wallets and holding cryptocurrency. Other legacy banking outfits have followed suit in barring bitcoin access, including Royal Bank of Canada, UBS Group AG, Citigroup Inc, and JP Morgan Chase & Co.