Chaos as bitcoin makes big break into Wall Street

Bitcoin’s roller-coaster ride showed no sign of stopping after it landed on Wall Street on Monday, but the City urged caution that the speculative bubble could now affect “real” stocks.

The crypto-currency’s price surged by up to 25% to $18,000 after it broke into the mainstream via the world’s futures market. It forced the Chicago Board Options Exchange (CBOE) to temporarily halt trading twice — first for two minutes then five — to cool volatility. Rival Chicago Mercantile Exchange is set to start offering similar futures next week.

For the first time, institutional investors can bet on whether bitcoin will continue to rise and fall, potentially influencing its price. Until now, bitcoin was mainly bought by individual investors on mostly unregulated markets.

The move is seen as a watershed moment for virtual currencies. However, concerns over banks and investors’ exposure to a bubble that could soon burst are intensifying. “As more traditional banks and brokers begin to offer markets in these assets, investors and savers will start to be exposed,” said Simon French of Panmure Gordon. “Regulators need to be vigilant; crypto-currencies could quickly begin to impact the share prices of regulated banks and brokers in a way that few yet understand.”

One bank analyst said: “I think it is a bit much to suggest that bitcoin could pose a greater systemic risk; just potential trading losses for those investment banks that choose to trade.

“I think the real risk sits with market-makers (spot and forward) for what is surely one of the most volatile financial instruments in existence. For these reasons, I believe one or two of the usual suspects have decided not to play.”

Bitcoin is not regulated by any country’s central bank and has no widely recognised exchange rate. Last week, the world’s largest banks were sceptical of the launch of bitcoin futures by CBOE and CME. The lobby group that speaks for the likes of Goldman Sachs, Morgan Stanley and JPMorgan said the financial system is not ready for it, arguing that insufficient attention has been paid to the risks involved.

Chris Ralph, chief investment officer at St James’s Place, said of bitcoin: “I refuse to use the word legitimate, but it’s probably moved out of the shadows and into the open.

“It has been described as the asset class of 2017 but when we went into the year no one would have called it an asset class.”