It is probably not a good sign for an investment when its largest clearing firm takes out an advertisement in the Wall Street Journal asking for more regulatory oversight and warning investors that its investment category is so volatile that futures contracts could create devastating losses. Yet this is exactly what has happened recently when Interactive Brokers, the clearing firm for the bitcoin cryptocurrency, responded to the Chicago Mercantile Exchange’s plans to start listing bitcoin futures.
The dustup is significant for a variety of reasons. First, you can hardly turn on your computer today without reading about the remarkable runup in bitcoin prices, and seeing a plethora of advertisements telling you how you, too, can get on the action. This, of course, is exactly what one sees at a precipitous market top, and indeed bitcoins are now trading at around $7,800—up more than 700% year to date, compared with a mere 14.6% for a pedestrian investment known as the S&P 500 index.
Second, there are serious questions—despite the “come-ons” and advertisements—about whether bitcoins should be considered investments in the first place. This proposed futures contract is the cryptocurrency’s first foray into the mainstream investment world, and some bitcoin owners are now wondering what, exactly, one does with a “currency” that is nothing more than blips in a distributed computer database, whose primary purchase vectors so far have been illegal drugs and illicit weaponry.
Bitcoin owners, meanwhile, are doubtless experiencing some of the same feelings that a dutch farmer would have gone through in the early 1600s, when the tulip bulb he held in his hand—worth far less than a guilder two years before—could now, in the teeth of a mania, be sold for a nice house or ten times the annual income of a skilled craftsworker. The wise move then would have been to cash out before the collapse. The same may be true today.
About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years. Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.
Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association.
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By Thomas Peterffy, one of the world’s most successful derivatives traders, reiterated concerns Wednesday that bitcoin could lead to a financial crisis. In an ad in the Wall Street Journal’s Nov. 15 issue, the Hungarian-born entrepreneur, who is the chairman of Interactive Brokers LLC, outlined his worries about an impending plan to launch a futures exchange tied to bitcoin in the coming weeks.
Bitcoin reached a fresh, all-time high today, surpassing $7,800 for the first time and moving ever closer to $8,000, the next key, psychological price level. The world’s largest digital currency by market capitalization rose to as much as $7,815.03, according to the CoinDesk Bitcoin Price Index.
PUT the word Bitcoin into Google and you get (in Britain, at least) four adverts at the top of the list: “Trade Bitcoin with no fees”, “Fastest Way to Buy Bitcoin”, “Where to Buy Bitcoins” and “Looking to Invest in Bitcoins”.