Bitcoin bulls beat bears; SEC chief warns on cybercurrency risk

Receiving Wide Coverage ...
Bulls 1, Bears 0: Bitcoin futures jumped 24% to $18,545 from $15,000 on the digital currency's first day of trading on the exchange run by Cboe Global Markets. Traders had anticipated that futures contracts would help reduce the volatility of bitcoin by bringing in both bullish and bearish investors, the Wall Street Journal noted. "But in fact, the rollout of Cboe's futures actually sparked intense volatility and appeared to pull the price of bitcoin itself higher." Wall Street Journal, Financial Times

More than $75 million of bitcoin futures were traded on the first day, the Financial Times reported, "representing a modest but significant sum for derivatives on a digital currency whose underlying utility is still a matter of debate." Financial Times, New York Times, Washington Post

It's not debatable to Jay Clayton, the chairman of the Securities and Exchange Commission, who issued a long warning Monday to investors about the dangers of trading the volatile currency, which the SEC doesn't regulate. Wall Street Journal, Financial Times

However, it does regulate initial coin offerings, and on Monday it stopped Munchee, a San Francisco company that operates a restaurant review app, from offering $15 million in digital tokens to raise money from investors. The SEC said the sale was illegal because it was advertised to the public without the proper disclosures. It was the first time the SEC took action against an ICO without making fraud claims, the Journal said. Munchee wasn't fined.

It's also not debatable to Lawrence Baxter, a law professor at Duke, where he co-directs the Global Financial Markets Center. He thinks the price of bitcoin is headed to zero, not infinity and beyond. "In the long run, the smart bet is against bitcoin, for at least four reasons," he says in a Journal op-ed piece.

"Bitcoin is on a collision course with sovereign states," he writes. "Bitcoin was founded on a libertarian ethos, and its proponents zealously resist licensing and regulation. Taken to its logical conclusion, this philosophy would entail the elimination of central banks."

All of those warnings haven't stopped people from buying bitcoin, however, and the world's biggest cybercurrency exchanges have had trouble keeping up with the frenzied trading in the currency in the runup to futures trading, with several reporting service outages.

Much of the mania is being driven by millions of individual investors in Asia, the Journal says. "Despite the attention focused on the launch of bitcoin futures in the U.S., the center of gravity for trading the virtual currency, measured by volumes, has been in the East—starting in China, before shifting earlier this year to Japan, and recently to South Korea as the latest hot spot."

Quotable
"Bitcoin is one of the few markets we've ever had in history where you've seen these astronomical gains around the world and the retail investors in Asia are the ones driving it. It feels like this whole thing is being driven by the average Joe who isn't nearly as financially literate as a professional fund manager." — Chris Weston, chief market strategist at IG Group, an online trading platform.