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People and MarketsCommentLeader

Crypto still too exotic for futures

Bitcoin crash adobe stock

The cryptocurrency world exploded in popularity, appeal and market capitalisation over the course of 2017. Exchanges struggled to develop products to cater to the huge swell of speculative demand. They’re learning quickly that the market wasn’t ready.

While the cryptocurrency market cap reached around $750bn at the end of the year, the foundations were far from solid. Since then, the market has shed $250bn, much of it coming from bitcoin, which has dropped to $9,000 from $19,500 only months ago.

This week, it was reported that US derivatives regulator the CFTC has subpoenaed the world’s largest cryptocurrency exchange, Bitfinex, and the cryptocurrency Tether, which share a chief executive.

Players in the cryptocurrency market have thrown around allegations of unscrupulous trading designed to prop up the bitcoin price at Bitfinex for months now. Many have called into question the collateralisation of Tether. However, it was not until reports of the subpoena surfaced that it began to have a material effect on price.

GlobalCapital cannot confirm any of these allegations, but one thing has become increasingly clear: bitcoin exchanges have a serious transparency problem. Cryptocurrency exchange Kraken recently went down for 48 hours during an upgrade while hackers made off with 500m XEM coins from Tokyo exchange Coincheck.

Kraken is one of the exchanges that provides data used by the CME Group for its bitcoin futures product.

It is becoming painfully obvious that the introduction of derivatives to the cryptocurrency world was, as GlobalCapital warned at the time, a rash move. Cryptocurrencies, for all their merits, are simply too immature to justify potentially multiplying global exposure far beyond the market cap via derivatives.