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It seemed as if the upcoming bitcoin futures contracts offered something for everyone. Bulls were happy at a move which seemed to grant the asset mainstream legitimacy while bears finally had a market where they could be bearish. However, one group is considerably less impressed, the financial institutions who will have guarantee this new system.  

Futures Industry Association Concern

The Futures Industry Association (FIA) has penned an open letter to the Commodity Futures and Trading Commission (CFTC) expressing their concerns that an unusual asset like bitcoin requires greater oversight and prudence than it has been given.  

Futures contracts take place between buyers and sellers with clearing houses in the middle. In the case of either side defaulting the clearing house will cover the trade. The FIA’s worry is that bitcoin prices are so volatile there will be more defaults than for “normal” assets, and its members, some of the biggest institutions in finance, will be on the hook for trading losses.

Bitcoin Unusually Risky

In the letter FIA chief executive Walt Lukken said that his group welcomed innovation but that there was a need to proceed “conservatively”. Suggesting that insufficient consultation and discussion had taken place before the contracts’ launch he stated that clearing houses were bearing a disproportionate amount of the risk.

Self-regulation Not Enough

The CME and Cboe will be self-regulating these new products. The FIA think that due to the nature of bitcoin this is just too risky. Self-regulation “does not align with the potential risks that underlie their trading and should be reviewed”.

Concern about the lack of regulation was not confined just to the new futures contracts but included the underlying asset too. Lukken wrote that his members, 

remain apprehensive with the lack of transparency and regulation of the underlying reference products on which these futures contracts are based.”

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