The Cboe futures contract has been modestly successful. Volatility in the bitcoin cash market has not been as high this week as it has been in previous weeks, and the spread between the futures and cash contract has narrowed to a little over 1.5 percent from more than 5 percent earlier in the week.
Here's the bad news: volume in the Cboe contract has been very small. On average, roughly $60 million in notional value has traded each day.
In just the last 24 hours, about a half-million bitcoins alone have changed hands. At $17,000 per bitcoin, that is about $8.5 billion.
Get it? $60 million vs. $8.5 billion.
Given the interest in bitcoin, why such small volumes?
For Bobby Cho, a trader at Cumberland Mining, a subsidiary of DRW, who is one of the market makers in the Cboe contract, it's a simple matter: "The largest traders of bitcoin are retail players that don't live in the U.S." He also points out that not only are the largest bitcoin miners in the world not in the U.S., but they are also not built to trade financial instruments. They're built to mine bitcoin.
Fair enough. There's an additional problem. If you are a natural hedger — if you own bitcoin, and you want to short some of that as a hedge — you need to have functionality. You need to be able to get in and out of your positions easily.
Those conditions are not really present. Most of the large brokerage houses do not allow their customers to trade, or if they do (as is the case with Goldman Sachs) it's under very restrictive conditions. The discount brokerage houses, with the exception of Interactive Brokers, also are not allowing trading, and even Interactive Brokers' margins are high (50 percent)
This may be starting to change with more retail participation, higher volumes and a higher dollar value in futures trading.
Next, expect some of the larger institutional firms such as JPMorgan, Morgan Stanley, etc., to allow their customers to trade. That will allow the entry of hedge funds and larger institutional players, who may have a very different notion of bitcoin's future.
That's when things might get interesting.