Wall Street vs Crypto is a good story. It feels satisfying when Jamie Dimon calls bitcoin a fraud, or Ray Dalio labels cryptos a bubble. But unfortunately, the trend of late has been to play it safe. Bank chiefs like Lloyd Blankfein and James Gorman have been equivocal, and more and more legacy institutions have warmed up to the idea of bitcoin trading. Jamie has (mostly) shut up on the topic, and JPMorgan is even rumored to be considering a crypto futures desk.
But it looks now like the battle isn't over. With bitcoin futures trading set to begin at the CBOE this coming Sunday, the biggest banks have gotten their act together to lodge a response. Modeling the sort of responsibility and professionalism it expects of the upstart crypto community, the Futures Industry Association has decided that three days before bitcoin futures trading goes live is as good a time as any to protest bitcoin futures trading going live:
The Futures Industry Association, the main futures industry lobby group, plans to send a letter to the CFTC that will be published on Thursday. In a draft seen by the FT, the FIA writes that the rapid introduction of bitcoin futures “did not allow for proper public transparency and input...It is also our understanding that not all risk committees of the relevant exchanges were consulted before the certification to launch these products,” the letter added.
Evidently, the proper protocol for providing input is waiting until 72 hours before a proposal becomes a reality and then crying to regulators that, actually, it's bad. Though, to be fair, it wasn't until last week that the CFTC finally shrugged its shoulders and told the CME and CBOE to just go for it, whatever.
But really, who knows whether the banks that support the FIA really care much about risk committee procedures and public commentary. The actual rub, according to the FT, is this:
Futures brokers are worried they will bear the brunt of the risk associated with bitcoin futures, because the margin that backstops the contract is placed in a clearing house...Several brokers among the top 10 largest providers have privately confirmed to the Financial Times that they will not clear the products immediately.
Though investors have to put up some margin to trade bitcoin futures (a whopping 33 percent on the CBOE), clearinghouses require their members to supply extra backstop in the case of a meltdown. So if bitcoin tumbles to some disastrous low and thousands of overextended cryptomaniacs get wiped out – or somewhat less likely, if a wave of shorts gets obliterated by a bonkers vertical move – JPMorgan and Citi are going to have to foot at least a small part of the bill. Given the fact that none of the big boys have any public plans to do bitcoin futures trading of their own, they get all the downside with none of the upside.
Of course there are still procedural concerns, what with CME and CBOE whisking bitcoin through the approval process as if it were just another equity futures product and not a cash wager on a completely unprecedented and entirely speculative digital asset unusually prone to hacks, crashes, frauds and fuck-ups.
But it's hard to imagine the exchanges reversing course now just because of a nasty letter to the CFTC. Bitcoin futures are going to be a reality, and the inevitable implosion will be all the better for the big banks' grudging involvement.