Some of the largest US futures brokers, including JPMorgan and Citigroup, will not immediately clear bitcoin trades for clients once futures contracts in the cryptocurrency begin trading next week, according to people with knowledge of the banks' plans.
Many big global banks that are allowing such trading, such as Dutch bank ABN Amro, will clear for customers only after implementing strict standards that will make transactions very difficult. Others, such as Société Générale, are still considering their stance, leaving smaller brokers like Wedbush and Interactive Brokers as some of the few firms where trades will be executed.
Chicago's Cboe Global Markets plans to initiate derivatives trading late on Sunday evening, jumping ahead of cross-town rival CME Group, the world's largest futures exchange, which debuts its own offering on December 18. They are the first traditional exchanges to jump into the volatile bitcoin market.
The decision by the Cboe and CME has divided the world's largest investment banks who play a central role in facilitating such derivative transactions.
While many of clients hope to begin trading bitcoin futures, some banks are worried about managing the risk associated with the contracts, particularly given the manic swings seen in recent weeks. The trading system's infrastructure has also come into question after bitcoin's price diverged between the main private cryptocurrency exchanges this week.
On Thursday alone the price of bitcoin on the largest private exchange swung just under a fifth in around 40 minutes. There is also a backlog of unconfirmed transactions on the exchange, leading to concerns about the accuracy of settlement prices for bitcoin trades.
Bitcoin retreated back below $15,000 from a record price of $17,027 on Friday, having begun the week around $10,500, according to Bloomberg.
Typically, the futures broker acts as a middleman in a trade, executing orders and supervising the margin calls that backstop the contract. Some futures brokers are worried they will bear the brunt of the risk associated with bitcoin futures, because the margin that backstops the contract is placed in a clearing house.
Clearing houses stand between two parties in a futures trade, managing the risk to the rest of the market if one side should default. They are mutually funded in part by banks to guard against the failure of their largest members.
For potential buyers and sellers of futures, another question is whether the volatility in bitcoin prices will trip the buffers — known as circuit breakers — that calm wild swings in the derivatives market.
Exchanges can apply temporary freezes on trading, usually lasting seconds or minutes, which act as a breather for investors and the exchange to assess if there is any particular problem.
B2C2, a UK cryptocurrency broker planning to trade the futures contracts, warned that the circuit breakers would be one of the key issues for trading.
"No settlement mechanism is perfect especially in such a nascent market. It'll be interesting to see if a contract ever settles outside the circuit breaker range," said Max Boonen, founder of B2C2.