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Futures trading prompts CSA cryptocurrency caution

by Greg Klein | December 18, 2017

While Bitcoin continues its burst-defying volatility, the Canadian Securities Administrators issued a public warning about cryptocurrency-related investment products. Although they “may be traded on regulated exchanges and may be cleared by regulated central counterparties, the fact remains that their high level of risk will not be suitable for all types of investors.”

Futures trading prompts CSA warning on cryptocurrencies

Cryptos go increasingly mainstream, but at what price?

The December 18 notice comes as the Chicago Mercantile Exchange began trading Bitcoin futures, following the example of the Chicago Board Options Exchange the previous week. At least one source told Bloomberg Nasdaq will join in during the new year.

“The underlying value of these futures contracts is based on trading occurring on markets for cryptocurrencies which are largely unregulated,” pointed out Louis Morisset, CSA chairperson and president/CEO of Quebec’s l’Autorité des marchés financiers. “Therefore there may be some circumstances such as price volatility in the underlying markets which may lead to consequences such as sudden and significant margin calls in the futures market.”

Writing in the Financial Post on December 8, Claire Brownell noted that new investment products like futures and ETFs indicate “the amount of capital at risk if the cryptocurrency bubble bursts is probably going to grow exponentially. And the traditional financial system, which some predicted would be obliterated by Bitcoin, will become even further integrated into what was once considered a fringe curiosity.”

Last August the CSA, the umbrella group for Canadian securities regulators, warned of cryptocurrency concerns involving “volatility, transparency, valuation, custody and liquidity, as well as the use of unregulated cryptocurrency exchanges. Also, investors may be harmed by unethical practices or illegal schemes, and may not understand the properties of the investment products that they are purchasing.”

Canadian securities laws apply “if the person or company selling the securities is conducting business from within Canada or if there are Canadian investors,” the CSA pointed out.

Bitcoin itself hit a December 18 press time price of $19,193, as media reported six-digit forecasts.

While conceding that institutional acceptance might push the price all the way to $1 million, Daily Reckoning editor Brian Maher noted that a futures market for tulips opened in 1636, at the height of the Netherlands’ tulip mania. “The tulip bubble burst in 1637,” the skeptic noted.

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