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The biggest broker for bitcoin futures says it will start to allow customers to bet against the cryptocurrency, in a move that could change the dynamics of the nascent market.
Interactive Brokers will by the end of this week give its customers the opportunity to take bearish “short” positions on bitcoin futures, said Thomas Peterffy, its chairman, reversing a decision to only allow bullish, long trades.
Interactive was among the handful of brokers that cleared the futures upon their debut this week, handling what it estimated to be 53 per cent of total bitcoin volume on Cboe Global Markets during the inaugural session.
The move could influence the balance of trading at Cboe, where bitcoin futures began trading on Sunday, and at CME Group when that exchange operator launches a rival contract next week.
Mr Peterffy said he made the decision after the bitcoin futures maintained a premium to the cash bitcoin they track, suggesting the market is out of balance.
“We realise that we have to open the ability to short it,” Mr Peterffy said in an interview on Tuesday.
Speculators wanting to short bitcoin futures this week have had to execute trades through other brokers.
The arrival of futures on established exchanges has given a stamp of legitimacy to the cryptocurrency, which evolved outside Wall Street and the purview of regulators.
Mr Peterffy has been a sceptical voice as bitcoin prices have climbed by more than 1,700 per cent in 2017. He unsuccessfully urged regulators to require separate clearing houses for cryptocurrency futures to prevent any market blowout from destabilising derivatives brokers.
Interactive indicated it would move to protect itself by requiring short-sellers to deposit five times the value of their futures contracts to cover potential losses, making negative bets significantly more expensive than positive ones. There is no limit to the potential losses on short positions if prices continue to shoot higher.
And Mr Peterffy expressed his doubts about the wisdom of the positions he is allowing clients to take. “I think it’s suicidal to sell this contract, because it can run away with you. How much a bitcoin is worth, nobody knows,” he said.
He added that the market did not contain many “natural shorts” such as exist in commodities markets where, for example, farmers sell in order to hedge the prices of their crops.
“On the short side, there could be people who have gotten into bitcoin at a much lower price and they may want to realise some of their gains,” Mr Peterffy said.
Accounts placing long bitcoin trades through Interactive must post 50 per cent of the contract value as margin. With Cboe January-expiry bitcoin trading at $18,020 per contract on Tuesday, that would mean a deposit of more than $9,000, including margin required by the exchange.
Given the higher risk of being short, Mr Peterffy said that, at today’s prices, margin for a single bitcoin short position would be “in the neighbourhood of $100,000” at Cboe. At CME, whose contract size will be five times larger, margin for short traders would be around half a million dollars.
Separately, CME late on Tuesday raised clearing house margins for its bitcoin futures to 43 per cent from an original plan of 35 per cent, citing a “normal review of market volatility to ensure adequate collateral coverage”.