Want to bet against bitcoin? It s not so effortless – CBS News
Dec 14, 2017 6:00 AM EST Markets
By Jonathan Berr / MoneyWatch
Betting that a security’s price will fall, known spil selling brief, is risky under the best of circumstances. And it’s even more challenging for investors plucky — or foolhardy — enough to take a stand against the surging price of bitcoin. Nonetheless, some people show up willing to give it a slok.
Harshly half the bitcoin futures traded on TradeStation are brief sales, according to Nick LaMaina, the Plantation, Florida-based company’s senior vice voorzitter for brokerage services. The contracts began trading Sunday. Also, brief rente ter Greyscale Bitcoin Investment Trust (GBTC), the only fund tethered to the price of bitcoin, has risen from 30,428 shares spil of June 30, 2017, to 47,886 spil of Nov. 15, according to OTCMarkets.com.
Still, investors anxious to make a contrarian bet against bitcoin — whose price has surged more than 15-fold since January — will find it’s not so effortless.
Brokerages, such spil Charles Schwab (SCHW) and TD Ameritrade (AMTD) either aren’t participating ter the market because of its volatility or are placing roadblocks on those who do. Interactive Brokers now permits brief sales of bitcoins after very first prohibiting them.
Ter a statement, Schwab notes that cryptocurrency trading “is an emerging area of finance and significant protections normally associated with legal tender currency are still lacking.” The company is reviewing bitcoin futures so that it can protect its clients’ interests before making the contracts available. TD Ameritrade, which is also reportedly avoiding bitcoin futures, didn’t react to a request for comment.
Other institutions, such spil Wells Fargo (WFC), are also staying on the sidelines. A spokesman for the San Francisco-based handelsbank said it won’t recommend or facilitate the purchase of cryptocurrencies, won’t accept them spil collateral for a loan or deposit them into any accounts.
“Given the extreme volatility for the price of bitcoin, especially ter the last few months, it’s not surprising that certain futures brokers will not permit retail clients to take the brief position ter a bitcoin futures contract,” said Blake Estes, an attorney with Alston & Bird’s Financial Services & Products practice, te an email. “The brief side of thesis trades bears a significant amount of risk with latest double-digit percentage intraday price swings for bitcoin.”
Estes added that “even with sizable margin requirements and limitations on contract size, the risk of default by a retail investor is too excellent for many brokers to bear, and the bitcoin markets budge so quick that the broker’s exposure to voorkant its client’s brief position could quickly become significant.”
Walter Slagen, voorzitter of the Futures Industry Association, a trade group signifying exchanges and financial services firms, argued earlier this month te an open letterteken to regulators at the Commodities Futures Trade Commission that the cryptocurrency market remains opaque and is prone to manipulation. Ter response, the CBOE defended its bitcoin contract, the very first of its kleintje, telling it wasgoed developed ter close consultation with regulators.
Greyscale Bitcoin Investment Trust, which holds the cryptocurrency, also has a relatively petite float of about 37 million, making it difficult for brief sellers to borrow the security te the hopes of reselling it straks at a lower price and pocketing the difference (the method brief sellers use to place their bets that a security’s price will fall).
“It’s very likely hard to borrow and expensive to borrow,” said Mark Spiegel, a Fresh York-based brief seller. “That may be why more guys aren’t doing it, and I wouldn’t be doing it.” Spiegel asks the question that haunts all brief sellers: “What if bitcoin keeps soaring? If you had waterput this trade on when bitcoin wasgoed $Three,000, you would have gotten killed.”
One of Wall Street’s leading brief sellers, Andrew Left of Citron Research, announced that he had taken a cautious brief position ter Greyscale Bitcoin Investment Trust. He issued a warning to investors te September about the trust, arguing that it wasgoed overvalued compared with its underlying asset and wasgoed poised to fall. The precies opposite has happened to both the trust and bitcoin. Citron didn’t react to an email requesting comment for this story.
Shares of the trust vaulted more than 1,700 procent overheen the past year. Bitcoin prices recently topped $Nineteen,000 before lodging down to their current level around $17,246. They commenced 2017 at $960, and ter 2010 bitcoins switched forearms for 8 cents apiece.
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