NYSE Exercises Patience On Bitcoin Derivatives

“Be quick, but don’t hurry.” These are the words of legendary basketball Coach John Wooden, who guided UCLA to 10 NCAA national championships in a 12-year period.

In the rush to bring bitcoin derivatives to market, traditional exchanges would be wise to listen to Coach Wooden’s philosophy. Bitcoin futures have stoked fears of destabilization and even whispers about the next financial crisis. But, a plethora of traditional exchanges – CBOE, CME Group, Nasdaq, and Cantor Fitzgerald – have piled on the crypto derivatives bandwagon.

That’s not the case for Intercontinental Exchange Inc, owner of the New York Stock Exchange.

“We didn’t think it was obvious to rush out a product and be first,” said CEO Jeff Sprecher on Tuesday, expressing concern about the lack of transparency at cryptocurrency exchanges, many of which will be referenced in price indexes used for cryptocurrency derivatives.

In the social media sphere, concerns about cryptocurrency exchanges are rampant, but thus far, there has been little conversation about how the structure and standards of underlying markets will impact cryptocurrency derivatives.

What kind of margin trading do cryptocurrency exchanges allow? Do they have sufficient volume? Do these platforms hold adequate reserves? (I’m looking at you, Bitfinex.) Are their data feeds reliable?

Although the CFTC released a statement following a wave of product self-certification, the questions about cryptocurrency derivatives are many, and the answers – at least for the public – are few.

In an era when many executives are touting the benefits of blockchain without even a basic understanding of the technology, Sprecher’s humility is refreshing and all too rare. Yesterday, he confessed, “I don’t know what to make of cryptocurrencies.”

At least in the financial realm, can any of us claim otherwise?

The core technology might appear impervious to external influences, but the value ascribed to a bitcoin (or any cryptocurrency) depends on much more than the simple security of its blockchain.

There’s little doubt that fortunes will be made (and lost) with the advent of cryptocurrency derivatives, but it’s tough to calculate the incentives created by complex fee structures, position limits, expiration dates, and margin trading – and that’s without considering who’s mining and which altcoins they’re pushing. For instance, Sprecher said, it’s hard to figure out who would want to short bitcoin futures.

Financial variables could cause a dramatic spike or crash in the price of bitcoin without ever touching the blockchain. It’s important to remember that the price can move independently of the technology. Energy trader Mark Fisher put it this way: “For someone like me, who cares what [price] it is, as long as it moves, right?”

Overall, the NYSE’s discipline in holding back may prove wise. It might be that the early bird gets the worm, but the second mouse gets the cheese.