The countdown continues. CBOE's bitcoin futures are now less than 48 hours away.
However, a handful of banks appear apprehensive about the prospect of cryptocurrency derivatives. JP Morgan Chase & Co., Bank of America Merrill Lynch, Citigroup Inc., and Royal Bank of Canada reportedly will not offer customers access to the market – at least, not right away.
JP Morgan's refusal is the least surprising, given CEO Jamie Dimon's skepticism about bitcoin, but that doesn't mean the market is completely off the table. Based on liquidity and volatility, the bank may reconsider. After all, JP Morgan Chase is the second-largest futures broker in the US, per CFTC statistics.
The largest, Goldman Sachs Group Inc., will dip its toes in the water, allowing some customers to participate in the cryptocurrency derivatives market.
As futures brokerages, banks can be liable for trading losses if a customer's trades go belly up. Given bitcoin's notorious volatility, some have raised questions about whether cryptocurrency derivatives are ready for traditional financial markets.
This week, the president of the Futures Industry Association, Walter Lukken, posted an open letter to CFTC chairman J. Christopher Giancarlo, questioning whether one-day self-certification of cryptocurrency derivatives is appropriate given bitcoin's risk profile and unique nature.
"We believe that this expedited self-certification process for these novel products does not align with the potential risks that underlie their trading and should be reviewed," Lukken wrote.
Similarly, in November 2017, Interactive Brokers CEO Thomas Peterffy worried about the potential failure of clearing houses that deal with cryptocurrency derivatives. Nonetheless, Interactive Brokers will allow traders to go long on bitcoin futures (no short bets though, because of the theoretically unlimited losses).
"We are still concerned that customers will default and some smaller brokers will go bankrupt which may destabilize the clearing houses," Peterffy told the Wall Street Journal.
It might be a relief to know that banks are mostly playing it safe with cryptocurrency derivatives, but come Sunday night, all cryptocurrency stakeholders would be smart to follow market developments. I, for one, can't wait to get into the office on Monday morning.