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FIA is Disgruntled Over the Bitcoin Futures Contracts Self-certification Process

by on December 7, 2017
 

Bitcoin futures contracts ate the new hot trend among financial institutions. After opposing cryptocurrency for many years, they now want in on the Bitcoin price action. Several institutions have announced their futures contracts which will launch soon. However, the FIA is not too pleased with this development whatsoever. It is one thing to support innovation, but there are some concerns to take into account as well.

It was to be expected the Bitcoin futures markets would cause some friction. Financial institutions scramble to offer such investment vehicles to their clients. However, these decisions were made rather hastily. Self-certified futures and options contracts are a very dangerous tool to wield. The FIA is growing concerned over this process, for obvious reasons. More specifically, these novel products are launched after a 1-day self-certification process.

FIA Doesn’t Like The Bitcoin Futures Launch

While that is legally allowed, it is also problematic. Without proper public transparency and input, none had any say in these decisions. The financial service providers take it upon themselves to launch these products and manage them properly. Bitcoin futures are very different from regular options contracts, though. All of this can be done without CFTC approval, although it is generally “not done” to take this approach. Bitcoin is a very different creature compared to anything else the world has seen so far.

One thing to keep in mind is how Bitcoin futures have no historical data. The FIA clearing members wonder if this will cause them to carry most of the risk. More specifically, the clearing members guarantee fund contributions and assessment obligations. This is done even without them participating in the markets directly. This friction and schism between both parties is a problem that needs to be resolved. How this will be tackled is anybody’s guess at this point in time, though.

Whether or not this will impact the Bitcoin futures market at all, is unknown. No one can prevent companies from issuing these vehicles, but the friction will remain. If the clearing houses do not agree with this decision, they can – in theory -block any transaction related to these products. That could have catastrophic consequences for the Bitcoin price as a whole An interesting future lies ahead, but no one knows how things will play out.

Header image courtesy of Shutterstock

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