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Themis Trading's Joe Saluzzi: Bitcoin May Spark 'Financial Crisis All Over Again'

Themis Trading's Joe Saluzzi: Bitcoin May Spark 'Financial Crisis All Over Again'
Ruslan-Olinchuk/Dreamstime

By    |   Tuesday, 31 October 2017 02:28 PM

Themis Trading's Joe Saluzzi isn’t celebrating news that the world’s largest futures market operator CME Group said it would launch a regulated trading venue for cryptocurrencies in the fourth quarter of 2017.

"I have no problem with bitcoin. I like the concept," said Joe Saluzzi, a principal at Themis Trading. He worries that bitcoin is still unregulated and thus open to fraud.

Bitcoin has surged in value by around 555 percent so far this year. 

The digital currency soared to a record high price above $6,300 after CME, the world’s largest futures market operator, said it intends to launch bitcoin futures in the fourth quarter, pending regulatory approvals, Reuters reported.

The new contract will be settled in cash, based on the CME CF Bitcoin Reference Rate (BRR), a once-a-day reference rate of the U.S. dollar price of Bitcoin. Bitcoin futures will be listed on and subject to the rules of CME.

"I have a problem that on Wall Street the innovators are trying to package something up and put a derivative label on it when they really don't know what's underneath. It reminds me of the financial crisis all over again."

Saluzzi fears the futures approval could open the door to an ETF for bitcoin that would put retail investors' money at risk.

"They're desperate for an ETF on this thing," Saluzzi said, referring to the major exchanges.

The Securities and Exchange Commission already has weighed in on bitcoin ETFs, rejecting a highly publicized request from Cameron and Tyler Winklevoss. The decision was based in part on bitcoin lacking a regulatory infrastructure that would prevent manipulation, CNBC explained.

"There could be spoofing, there could be layering, there could be all sorts of manipulation going on in bitcoin now, and nobody knows," Saluzzi said. "Until they say they are watching and making sure there are no manipulations and fraudulent activities, until they say we have a better regulatory system, I think we are playing with fire."

Since November last year, CME Group and UK-based bitcoin futures exchange Crypto Facilities Ltd have calculated and published the BRR, which consolidates the trade flow of major bitcoin spot exchanges during a calculation window into the U.S. dollar price of one bitcoin as of 4:00 p.m. London time.

Cryptocurrency exchanges Bitstamp, GDAX, itBit and Kraken currently contribute prices for calculating the BRR, Reuters reported.

“Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract,” said Terry Duffy, CME group chairman and chief executive officer.

The launch of a bitcoin product by a large regulated exchange institution could help cryptocurrencies gain legitimacy in mainstream finance. Some cryptocurrency exchanges have been hit by fraud and deception, a Reuters special report showed last month.

Bitcoin jumped to an all-time high above $6,400 on Tuesday on the BitStamp exchange after the CME news. It was last at $6,352.07, up nearly 4 percent.

This year’s bitcoin rally has created a divide on Wall Street.

Many large institutions support the use of blockchain, the technology underlying cryptocurrencies, to improve back office processes. Yet some bankers oppose doing business with actual cryptocurrencies that are not backed by national governments and have been involved in scandals.

Other like CME see crypto-currencies as a business opportunity. Rival exchange group CBOE Holdings Inc has applied with U.S. regulators to launch a bitcoin futures contract and a bitcoin exchange traded fund on its venues.

“There are lot of people who want to participate in bitcoins and the blockchain technology so it should be well-received,” said Greg Adamsick, director of global futures and options at RCM Alternatives in Chicago.

“This should legitimize bitcoin with the move by the CME. It should make it more comfortable for people to hold.” he added.

CME and Crypto Facilities also publish the CME CF Bitcoin Real Time Index (BRTI) to provide price transparency. The index provides a spot price that reflects instantaneous U.S. dollar price of bitcoin.

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Themis Trading's Joe Saluzzi isn’t celebrating news that the world’s largest futures market operator CME Group (CME.O) said it would launch a regulated trading venue for cryptocurrencies in the fourth quarter of 2017.
bitcoin, cme, financial, crisis
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2017-28-31
Tuesday, 31 October 2017 02:28 PM
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