Page 58 - Bloomberg Businessweek-October 29, 2018

◼ FINANCE Bloomberg Businessweek October 29, 2018

thing. “There’s been more articles than vol- would be given the drop in prices and the perfor-
ume,” Chris Concannon, Cboe chief operat- mance of Bitcoin contracts.
ing officer, told Bloomberg in August. “It’s a Exchanges aren’t done experimenting with
little bit shocking to me the attention this mar- Bitcoin. Intercontinental Exchange Inc., a Cboe
ket gets vs. its size. The entire crypto market is a and CME rival, plans to introduce futures through
fifth of Apple.” Apple Inc.’s market value is more a new company called Bakkt, a platform for using
than $1 trillion, compared with a total of about and trading crypto that has support from Starbucks
$210 billion for all the cryptocurrencies tracked Corp. Still, the University of Houston’s Pirrong
by Coinmarketcap.com. doesn’t see a big expansion anytime soon. “It has to
What’s more, the contracts are expensive com- become a more mainstream asset class, as opposed
pared with those for many other kinds of futures. To to the rather fringe part of the financial markets
place a trade, customers must post margin— industry that it is today,” he says. “If I knew whether that
parlance for collateral set aside in case a trade goes was going to happen, I’d probably be on a yacht
bad—that exceeds 40 percent of the value of the drinking mai tais.” �Lily Katz and Nick Baker
trade. That means stashing more than $4,000 in a
clearinghouse for a $10,000 trade. That compares THE BOTTOM LINE Only a few thousand futures contracts for
Bitcoin trade every day. But they may find a niche with traders
with about 4 percent for CME’s S&P 500 futures. over time.
Large institutions tend to make up the bulk of
volume in futures markets, and they’ve been absent
from Bitcoin futures, Pirrong says. With commod-
ities such as corn and wheat, big farmers and agri- Singapore’s Tough-Love
cultural producers, in addition to speculators, use
futures contracts to hedge their risk. For Bitcoin, Regulator
there’s “a lack of any need for any hedging—there’s
really no major commercial or institutional use for

34 Bitcoin futures,” Pirrong says. “The natural clien-
tele for a futures contract doesn’t really want or ● Central banker Ravi Menon wants to give fintech
need Bitcoin futures. That might change someday. startups room to run in the city-state
A lot of the institutional firms are putting their toe
in the water.”
But if Cboe and CME Bitcoin futures have fallen The job of central bankers is to ensure the sound-
short of expectations, that doesn’t mean they’ve ness of money and the financial system in their
failed. Most products the exchanges launch have lit- countries. So they often cast a wary eye at financial
tle volume at first, Unetich says. “Many of them are technology startups and the disruptive forces they
killed off with very little fanfare,” he says. But Bitcoin can unleash. Not so for Ravi Menon.
futures are “probably considered statistically one of As head of the Monetary Authority of Singapore,
the more successful products, both out of the gate Menon manages the city-state’s monetary policy,
and with the growth in the first six months.” but he’s also the top financial watchdog for banks,
VIX futures, which Cboe introduced in 2004 and insurers, and asset managers. In 2016 and 2017, MAS
which allow traders to bet on the volatility of the shut down the local units of two Swiss banks and
stock market, took a long time to claim success, imposed more than S$29 million ($21 million) in
says Brad Koeppen, head of crypto trading at CMT fines on financial institutions for breaches of anti-
Digital. “But that is now a very successful product money laundering requirements linked to 1Malaysia
for the Cboe, and there are a lot of ETFs based off of Development Bhd., the scandal- tainted Malaysian ● Menon
it, and there’s a whole asset class around it,” he says. fund that’s the subject of investigations in the U.S.
“These Bitcoin futures will get to the same place. and Switzerland. LIU: JASON ALDEN/BLOOMBERG. MENON: WEI LENG TAY/BLOOMBERG. XI: ANDREY RUDAKOV/BLOOMBERG.
People just forget how long it took for the VIX.” But when it comes to fintech—companies look-
Futures based on Ether, the second- largest ing to provide services ranging from crowdfund-
digital coin, may be next. CME said in May it ing to robo-advisories—Menon is comfortable with
would review client demand for the product. The a more relaxed approach. It’s part of the govern-
exchange operator began publishing a price index ment’s goal of turning Singapore into a global fin-
for Ether, something it also did for Bitcoin, a har- tech hub, as it seeks to offset predictions of lower
binger of those futures contracts. Cboe has said growth and reduced employment in the wider
Ether is the next cryptocurrency it wants to tar- banking industry. “There is an inherent tension in
get. Still, it’s not clear how much demand there our policy objectives,” Menon says. “It is how the