New bitcoin-based security trades lower in debut on Chicago Mercantile Exchange

A new security based on the price of the digital currency bitcoin was trading lower Monday after its debut on the Chicago Mercantile Exchange, a week after another such security launched on a rival exchange.
A collection of Bitcoin (virtual currency) tokens are displayed in this picture illustration taken December 8, 2017. A new bitcoin-based futures contract has begun trading on the Chicago Mercantile Exchange. (Benoit Tessier/Reuters)

A new security based on the price of the digital currency bitcoin was trading lower Monday after its debut on the Chicago Mercantile Exchange, a week after another such security launched on a rival exchange.

The CME Group, which owns the Chicago Mercantile Exchange, opened up futures of bitcoin, which has soared in value and volatility this year, for trading on Sunday evening. The futures contract that expires in January settled at at $19,100 US, down $400 US.

The CME futures, like the ones that CME competitor the Cboe started trading last week, do not involve actual bitcoin. The CME's futures will track an index of bitcoin prices pulled from several private exchanges. The Cboe's futures track bitcoin prices on the particular private exchange known as Gemini.

Each contract sold on the CME is for five bitcoin.

Bitcoin's price has skyrocketed on private exchanges this year, largely under its own momentum, piquing interest on Wall Street. The virtual currency was trading below $1,000 at the beginning of the year, and rose to more than $19,000 US on some exchanges in the days leading up to its debut on the Cboe and CME. Bitcoin was trading at $18,889 US Monday  on Coindesk.

Valuation questions

The growing enthusiasm for bitcoin has raised questions over whether its value has gotten too frothy. The Securities and Exchange Commission put out a statement last week warning investors to be careful with any investment in bitcoin or other digital currencies. Further, the Commodities Futures Trading Commission has proposed regulating bitcoin like a commodity, not unlike gold, silver, platinum or oil.

Futures are a type of contract where a buyer and seller agree on a price on a particular item to be delivered on a certain date in the future, hence the name. Futures are available for nearly every type of security out there, but are most familiarly used in commodities, like oil wheat, soy and gold.

Bitcoin is the world's most popular virtual currency. Such currencies are not tied to a bank or government and allow users to spend money anonymously. They are basically lines of computer code that are digitally signed each time they are traded.

A debate is raging on the merits of such currencies. Some say they serve merely to facilitate money laundering and illicit, anonymous payments. Others say they might be helpful methods of payment, such as in crisis situations where national currencies have collapsed.