Kristian Rouz – In a paradoxical development, the world’s largest cryptocurrency bitcoin lost 20 percent of its value for the week, after being introduced in two prominent US options and futures exchanges. The digital currency, however, found a floor at some $15,000 per coin – this only after several platforms suspended traders from selling.
The bitcoin craze underwent its first serious test this past week, as the launch of digital currency futures at Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) facilitated its short-selling.
After bitcoin’s stunning ascent throughout the second half of this year, many traders opted to sell, capitalising on the twofold increase in bitcoin’s value over the past several weeks. This prompted a mass sell-off.
On Saturday, however, bitcoin gained in value after four consecutive days of declines. This sudden reversal drew attention to the $500-billion market, free of surveillance and regulation, and referred to by many as a bubble.
Market observers said scepticism of federal regulators, a massive sale of bitcoin by a prominent Japanese trader, and a desire to cash out amidst the Christmas shopping season might have also contributed to the decline in bitcoin’s value.
However, the bitcoin market remains fundamentally unchanged, except for bitcoin futures trading at CBOE and CME. This means most prominent developments in bitcoin trading are poised to originate from Chicago.
The cryptocurrency itself is still a typical limited-supply asset, overheated by the media hype and a widespread fascination of the general public with the recent surge in cyberattacks and cryptocurrency-extorting ransomware.
“With holidays approaching, some people want to step away from the table, and take their chips with them,” Marc Ostwald of London-based ADM Investor Services International said. “Still, I wouldn’t want to put it down too much to rationality, because this is not a rational market.”
However, the bitcoin market has shown signs of being regulated, or at least slightly manipulated. At the bottom of bitcoin’s plunge, one of the largest bitcoin trading platforms Coinbase halted all trading – in order to stop the cryptocurrency’s decline.
"All buys and sells have been temporarily disabled," Coinbase announced Friday morning, resuming trading after 2.5 hours. The disruption in trading came about after bitcoin dropped to $11,000, or 44 percent from its record high of $20,000 at the start of the week.
Additionally, on Thursday, Coinbase also halted all trading in the early evening – for at least 15 minutes. The platform claimed the disruption in trading stemmed from a high volume of traffic going through its processing capacity.
This also comes after reports of hackers meddling with trading or stealing bitcoin assets, coupled with allegations of insider trading in the cryptocurrency market.
"We didn’t like market conditions and we wanted to re-evaluate what we’re doing. I look pretty smart pressing the pause button right now," prominent investor Mike Novogratz commented on his decision to postpone the launch of a bitcoin fund due to the rife market volatility.
Whilst trading volumes in bitcoin futures at CBOE and CME remain fairly low, as both platforms still see it as an experiment, central bank officials warn of high risks of losing actual money by trading bitcoin due to the unpredictability of the digital currencies, and lack of clarity regarding mechanisms driving the market.
Some experts say making sense of bitcoin’s fluctuations requires a longer period of observation.
"This is exactly how this asset trades and has done since the beginning," Nick Colas of New York-based DataTrek Research. "It has a lot of volatility and it will for the foreseeable future."