Bitcoin heads to Wall Street to trade futures on exchanges

Bitcoin futures can now be traded. Jerome Favre/EPA

A US regulator has cleared the way for bitcoin futures to trade on major exchanges, but warned investors the digital currency is prone to elevated risk and volatility.

The decision opens the door for the Chicago Mercantile Exchange and CBOE Futures Exchange to offer contracts for futures of the virtual currency, rather than trading the actual currency.

The deal with the Commodities and Futures Trading Commission (CFTC) agency also enables Cantor Exchange to offer bitcoin options, another type of derivative contract, which allows for trading without taking ownership of an underlying asset.

CFTC chairman J Christopher Giancarlo said after "extensive discussions with the exchanges" they "agreed to significant enhancements to protect customers and maintain orderly markets".

The agency said the exchanges agreed to modify the derivatives contracts and promised to coordinate with the CFTC and each other to guard against market manipulation and other irregularities.

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"Bitcoin, a virtual currency, is a commodity unlike any the Commission has dealt with in the past," he said, warning that "investors should be aware of the potentially high level of volatility and risk in trading these contracts."

The agreement with the exchanges does not mean the CFTC endorses the digital currency or the various trading products, he said.

The announcement comes after Randal Quarle, a Federal Reserve governor and the Fed's vice chairman of banking regulation, warned that digital currencies like bitcoin could pose a threat to financial stability as they gain wider use because of the uncertainty of how they would fare during a crisis.

Bitcoin prices shot above $10,000 for the first time earlier this week and stood at $10.779 early on Saturday on the Coindesk site.

CME’s contracts will debut December 18. Cboe Global Markets did not announce a start date.

The moves are a watershed for Wall Street professionals -- including institutional investors and high-speed traders - who have been eager to bet on cryptocurrencies and their wild swings, but worried about doing so on mostly unregulated markets.

The problem among regulators is that they each have roles with bitcoin, but that there’s too little coordination, said Justin Slaughter, a former top aide to a CFTC commissioner who now consults on financial technology and regulation as a partner at Mercury Strategies.

“It’s been very scattershot, it’s been somewhat confused,” he said.