Cryptocurrency traders were having a blast Tuesday after bitcoin gained approval in the futures market, but not everyone was in on the party.
After CME said it would launch bitcoin futures before the end of the year, fears quickly arose that money would start cascading in, sparking dark comparisons with a financial crisis-like orgy of speculation.
"I have no problem with bitcoin. I like the concept," said Joe Saluzzi, a principal at Themis Trading. "I have a problem that on Wall Street the innovators are trying to package something up and put a derivative label on it when they really don't know what's underneath. It reminds me of the financial crisis all over again."
Remember the CDO wrapper around all those crappy mortgages during the financial crisis? Placing a wrapper doesn't make it safe.
Bitcoin operates in the essentially unregulated universe of digital currencies, with nearly five dozen exchanges around the world, only two of which are based in the U.S., according to Bitcoin.org. Prices can vary widely as there is no underlying or mutually agreed upon pricing instrument.
That's one thing that scares Saluzzi — like the mortgages inside the collateralized debt obligations that helped precipitate the crisis, bitcoin's value could be hard to determine and bring substantial risk to the market.
But more than that, he worries that CME's stamp of approval could legitimize bitcoin and persuade regulators to approve a growing list of requests for exchange-traded funds. Bitcoin's price surged past $6,400 Tuesday, according to CoinDesk.
That would take bitcoin out of the arena of futures markets and cryptocurrency exchanges — where traders should know the risks — and into the mainstream of investment, where the ETF industry so far has attracted $3.3 trillion of investor cash and continues to grow.
"They're desperate for an ETF on this thing," Saluzzi said, referring to the major exchanges.