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Hedge Funds prepare to trade against Bitcoin

by Editor

December 7, 2017 | 12:04 am
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The planned introduction of bitcoin futures contracts at CME Group Inc., Cboe Global Markets Inc. and Nasdaq Inc. will make it much easier to bet on a decline. Hedge funds, which have largely stayed on the sidelines, are waiting for the Chicago Mercantile Exchange’s futures market to open for a fresh opportunity to bet against the cryptocurrency, according to more than a half dozen people trading the assets.

“The futures reduce the frictions of going short more than they do of going long, so it’s probably net bearish,” said Craig Pirrong, a business professor at the University of Houston. “Having this instrument that makes it easier to short might keep the bitcoin price a little closer to reality.”

Bitcoin has gained millions of percent since it started trading in 2010. An investment of $1 at the beginning would now be valued at more than $1.4 million. A dollar invested in the S&P 500 stock index for the same period would now be worth less than $4 including reinvested dividends.

Some see the bitcoin market as “one of the greatest shorting opportunities ever,” said Lou Kerner, a partner at Flight VC who invests in the cryptocurrency. “You have a lot of zealotry, and a lot of people, including me, who think it’s the greatest thing to ever happen in the history of mankind. You have a lot of people who think it’s a bubble and a Ponzi scheme. It turns out both of them can’t be right.”

Bitcoin has been especially volatile recently, plunging nearly 20 percent in less than 90 minutes on November  29, to $9,009 after briefly topping $11,000. The price has since recovered, and was trading at more than $11,332.01 at 11:42 a.m. in New York on Monday, a 3.9 percent jump since Friday.

Cboe said Monday it will start trading bitcoin futures on Dec. 10, while CME’s contracts are set to debut on December 18. Nasdaq is planning to offer futures in 2018, according to a person familiar with the matter. Cantor Fitzgerald LP’s Cantor Exchange is creating a bitcoin derivative, and startup LedgerX already offers options.

Ari Paul, co-founder of hedge fund BlockTower Capital and former portfolio manager at the University of Chicago endowment, said people are mistaken if they think the famously volatile cryptocurrency is a clear-cut short.

“While some traders are eager to be able to short bitcoin and will do so when the futures are launched, there is a far greater amount of money eagerly awaiting the futures as a vehicle to go long,” Paul said.

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by Editor

December 7, 2017 | 12:04 am
  |     |     |   Start Conversation

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