Bitcoin futures contract flirts with $19K US, even as current price hovers near $16K

After jumping out of the gate, the first bitcoin futures contracts to trade on a mainstream exchange closed Monday at $18,545 US.

1st day of trading for bitcoin futures contracts on a mainstream, regulated exchange

Monday is the first day that investors can buy bitcoin futures contracts on a major regulated exchange. (Andrey Rudakov/Bloomberg)

After jumping out of the gate, the first bitcoin futures contracts to trade on a mainstream exchange closed Monday at $18,545 US.

The Chicago Board of Options Exchange started trading a bitcoin derivative contract on Sunday evening. The financial instrument allows investors to invest in — or against — the cryptocurrency without having to own it themselves.

A futures contract is an agreement to buy and sell something at a certain price, on a certain date. If the price of the futures contract is higher than the current price, that implies the buyer thinks the price in the real world will be higher by then, too, to justify the purchase. If it's lower, that implies the buyer thinks the real price will be lower by then too.

The contract to deliver a bitcoin on Jan. 18 went live at 6 p.m. Sunday evening for $15,600, roughly the same price as an actual bitcoin was going for at the same time.

But the price of the contract soon jumped to $18,850 before settling back in the afternoon. Along the way, two automatic trading halts occurred after the price increased by more than 10 per cent.

The spot price of bitcoin in real time, meanwhile, was above $17,000 US.

That spread between the going rate and the future contract price implies that buyers of that contract think the price of bitcoin will be higher in January than it is right now. The spread is well below some of the huge increases the cryptocurrency has seen in recent weeks.

"The one-month contract is trading at around an 11 per cent premium to the underlying bitcoin, and for me that's a clear indication that there's no connection between the two markets," said Lukas Daalder, chief investment officer at Robeco.

"The premiums have so far been very high, demonstrating that few want to take the short side of the trade," said Altana Digital Currency Fund manager Alistair Milne, who manages more than $35 million worth of assets in a cryptocurrency fund.

So far, the contract was also thinly traded.  On Monday, fewer than 4,000 contracts exchanged hands. That compares to hundreds of millions in daily volume for other future contracts that bet on what the price of things such as oil, stock markets, and  commodities will be in the near term.

"I can understand you don't see that many people who are willing to offer this contract, because you can't hedge your underlying risk if you can't short it," Daalder said. "This only adds to the bitcoin phenomenon. It's interesting to watch, but not a market that I would like to touch."

With files from Reuters