Wild Bitcoin Session Highlights Worries as Futures Trading Nears

(Bloomberg) -- Bitcoin’s poised to go legit. Is it really ready?

Three days before Cboe Global Markets Inc., one of the world’s biggest regulated exchanges, debuts futures on the cryptocurrency, it had one of its wildest sessions ever. On Coinbase Inc.’s GDAX exchange, prices zoomed up to almost $20,000 from $16,000 in only about 90 minutes -- then crashed back down. The largest digital currency is still up more than 16-fold this year.

Coinbase, one of the largest U.S. online exchanges used by investors, temporarily crashed and continued to suffer from service delays. Trezor, a wallet service, tweeted that it’s having “minor issues” with its servers, while Bitfinex, the largest bitcoin exchange in the world, said on Twitter that it has been under a denial of service attack for several days and that it recently got worse.

Cboe and CME Group Inc. (NASDAQ:CME) last week got permission to offer bitcoin futures. CME’s products launch Dec. 18.

The entrance of Cboe and CME is a watershed for bitcoin because many professional investors have been unwilling to do business on the unregulated platforms where bitcoin currently trades. Cboe and CME are regulated, potentially assuaging those concerns.

Some big traders had just warned about the impending introduction. On Wednesday, the Futures Industry Association -- a group of major banks, brokers and traders -- said the contracts were rushed without enough consideration of the risks.

The group outlined their concerns in an open letter, questioning whether the exchanges would be able to adequately police market manipulation for bitcoin futures. FIA added that the exchanges didn’t get enough industry feedback on margin levels, trading limits, stress tests, and clearing for the products before bringing them to market.

Laurie Bischel, a spokeswoman for CME, declined to comment. Suzanne Cosgrove, a spokeswoman for Cboe, didn’t immediately have a comment.

Other trading experts have sounded alarm bells on the possibility of manipulation. The thinking goes that because cryptocurrency markets aren’t policed by a central regulator, cheaters could fly under the radar if they try to move the price of bitcoin on exchanges with scant volume.

The Commodity Futures Trading Commission “has strong anti-manipulation rules for futures, but those won’t necessarily protect investors if the bitcoin cash markets are manipulated,” said Ty Gellasch, executive director of the Healthy Markets Association, an investor advocacy group.

Cboe’s contracts will be based off the price of bitcoin on the Gemini Exchange. CME is using four exchanges, including the Coinbase GDAX market where prices proved so volatile Thursday.

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Both Cboe and CME have curbs in place to calm price swings. Cboe halts trading for two minutes if prices rise or fall 10 percent, and a five-minute halt kicks in at 20 percent. At CME, prices aren’t allowed to move more than 20 percent.

At Coinbase on Thursday, Bitcoin (BitfinexUSD) was almost $3,000 pricier than the levels seen on other markets, a record high, according to data compiled by Bloomberg.

The premium reflects surging demand from new investors flooding into the exchange as the fear of missing out on bitcoin’s massive gains this year intensify, said Bryce Weiner, a blockchain developer since 2013. Coinbase has added at least 300,000 users since just before the Thanksgiving holiday and almost tripled its customer base in the past year.

“Coinbase is the biggest consumer-facing exchange,” said Weiner, who plans to launch his own cryptocurrency exchange Alt Market Inc. “The rest of the ecosystem can’t keep up -- that’s how much money is flowing in right now.”