In history, Bitcoin has been the only derivative which has gain the attention of majority on the global platform. History was made last night when the future of the world’s most popular cryptocurrency started trading at 18.00 ET, and this has put Bitcoin into the realm of mainstream regulators as well as investors. There was about 26% increase in its debut session on the CBOE Exchange.
However, the launch was accompanied with some problem because the trading volatility resulted to set in and affect trading. The CBOE exchange experience two trading halts during this period; the first one is a 2-minute halt when the price increased by 10% at 20:31 ET and the second one was for a duration of five minutes at 22:05 when the price fluctuated by 20%, according to the specification of the contract. The trading halts is also referred to as ‘circuit breakers’, are used to protect the investors from losing a huge amount and it also gives the market time so as to revive their thought process. Thus, they can be referred to as warning signs and their major objective is to limit the panic. In addition, the circuit breaks likewise create news flashes on the market and this enhances panic in many situations.
Due to the fact that the CBOE jumped in an unprecedented market, and their website exploded as a result of the high volume, choosing a stringent and rigid circuit breaking strategy which will ensure the protection of all parties involved is a fantastic move.
What is expected in the market is that the hedge funds which is also referred to as the big whales will eat up the bull due to the fact that this is their first chance to take part in the market. We got many calls in the market that there is excessive froth as well as hedge funds which are going to take that away. However, due to the fact that the trading of the future has started, one can easily observe that the trading in the Bitcoin future has become more stable and the bid-ask spread has also been narrowed.
About 2,900 contracts have traded for the month of January which can neither be classified as an anemic or explosive volume. What I think is that, the spot of the Bitcoin as well as the future market is somehow stable now and everything seems to be looking much calmer. The spread which was as high as $2000 has been reduced to $150 for the January and February contract. This shows that there has been a massive reduction in the volatility and we won’t be surprised if the margin requirements as well as the cost of transaction are further reduced.
The spread between the bitcoin future as well as Bitcoin cash index which was about $400 has also been reduced very well. In addition, confirming the same stance that the volatility is reduced by strict rules and the rules can be eased off very soon which would result to higher volume in Exchange. What I expect is for the volatility to drop over the long run due to the legitimacy being gained by the cryptocurrency and also the involvement of the financial institutions.