The Bit Short: futures trading presents bitcoin shorting opportunity

By Lucy Dean

December 12 2017
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Whether bitcoin is in a bubble is up for debate, but as bitcoin futures trading begins on the Chicago exchange, investors could have an opportunity to short the currency.

According to Australian economist and former member of the board of the Australian government’s Climate Change Authority, John Quiggin, the ability to trade bitcoin futures on the Chicago Board Options Exchange (CBOE) also makes it easier for investors to short the currency.

Bitcoin futures trading opened yesterday (11 December) on the CBOE.

Speaking to Nest Egg, Mr Quiggin explained that investors looking to short the currency would still need to have the financial means and time to do so, so it would most likely be a Warren Buffett-like investor who does so.

Continuing, he noted that up until this point, it’s been “very difficult to bet against bitcoin” but that the option to trade bitcoin futures will now make it “easier to go short”.

Further, he said that “obviously it’s [this development that is] not going to short it out of existence” but “somebody with significant dollars to spend, and time to wait might well make that bet now that it's feasible”.

Mr Quiggin argued, however, that should bitcoin “fall in a heap”, bitcoin investors will be the only people hurt.

“A bunch of people that got in late [will] lose their money, that's very sad for them but I don't think there's much systemic risk to the global financial system or anything like that.”

Fund manager, trader and educator Ray Barros added that bitcoin is “in a classic bubble situation” but agreed that the only people to be hurt will be the “newbies”.

He told Nest Egg: “I don't know of any professional that's involved with bitcoin, simply because if you go back through history, the South Sea Company bubble and so on, this has got all the earmarks of [a bubble].

“When it comes off, it's going to come off in such a big way that people aren't going to be able to get out and they will lose a lot of money.”

Last week bitcoin hit US$16,000, or about AUD$21,000.

According to Mr Barros, if investors are prepared to run the risk of being the last person buying into the cryptocurrency “that’s fine”.

However, he argued: “The stock market is probably a better bet in the sense that when it does crash, it will give you a lot more warning than bitcoin.

“As long as you don't get married to the stock market, I think if you want to make money the stock market's the place to be.”

He advised investors be on the lookout for 2007-esque conditions where for about three weeks the “market just totally collapsed”.

“That gave you fair warning that this was going to be a big time move. If you see that, don't say, ‘Oh well I'll wait for it to get back up there, then I'll get rid of it.’ Just get out, and then you'll be fine.

“I think that's where the opportunities lie [in bitcoin and in the stock market] but it's also where the risk is.”

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