Bitcoin rises in debut as SEC warns on digital money

Photo source AFP

Bitcoin futures for January delivery finished at US$18,850.00 near 2115 GMT on its first full day of trading, a bit below session peaks but soaring well past the US$15,000 initial price when Cboe launched the platform on Sunday night.

The Cboe launch marked the first opportunity for professional traders to invest in bitcoin on a traditional platform and is expected to be followed in a week by a rival listing on Chicago Mercantile Exchange.

Still, in a sign of the unease generated by meteoric rise of the digital currency, the top US securities regulator Monday cautioned investors on the risks of cryptocurrencies and "initial coin offerings," a major fundraising tool of new currencies.

"Investors should understand that to date no initial coin offerings have been registered with the SEC," said Jay Clayton, chairman of the US Securities and Exchange Commission. "If any person today tells you otherwise, be especially wary."

"I encourage Main Street investors to be open to these opportunities, but to ask good questions, demand clear answers and apply good common sense when doing so," Clayton warned.

Many major banks stayed out of the Cboe trading and have generally kept their distance from bitcoin, the most prominent of a plethora of emerging cryptocurrencies.

Cboe chief Ed Tilly called on critics of the virtual currency to express their skepticism in the market.

"Whether it's a fraud, whether it's a bubble, whether it's legitimate ... you will be able to express all of those thoughts in a transparent market place," Tilly told AFP in an interview several hours after the trading launch.

Bitcoin's Cboe debut, while largely uneventful, once again showcased its penchant for volatility as the exchange was forced to suspend trading twice due to major price swings. But Tilly said that indicates the exchange was operating as intended.

The exchange set a policy requiring such halts due to major price moves, for example requiring a five-minute suspension due to a 20 per cent move.

"So we hit those barriers on price movements and we did halt according to plans," Tilly said. "All things operated as they should."

'DIGITAL GOLD' ARRIVES

Bitcoin's breakthrough is the latest in a spectacular run for the online money dubbed "digital gold" by its advocates, which began life in 2009 as a bit of encrypted software supposedly written by an unknown coder with a Japanese-sounding name.

What began as the preserve of computer nerds and financial experts has gained a broader following among those seeking alternatives to traditional investments, and now can be used to pay for a pint in a London pub or a manicure, as well as to invest in startup ventures, and its valued has soared in recent weeks.

Investor interest has also risen in other digital currencies, such as ethereum, ripple and litecoin, which employ the same "blockchain" software foundation as bitcoin.

"The level of interest is unbelievable," said Timothy Enneking, founder and the primary Principal of Crypto Asset Management, an asset and fund management company that created a digital currency index.

"We get dozens of people contacting us each day to know how to invest in cryptocurrencies and we don't even do any marketing."

Fidelity Labs, part of the giant Fidelity Investments, has been active in bitcoin for four years, said managing director Hadley Stern.

"It really started with our executive team starting to see what was going on in bitcoin," Stern said.

"And then we became very interested in the underlying blockchain technology. The root of it was this transformational ability to transfer value from software to software alone."

But investors are also mindful pitfalls given the Wild West nature of the market. Regulators have increasing scrutiny of initial coin offerings (ICOs), a key fundraising tool for cryptocurrency fundraising.

The US Securities and Exchange Commission on Monday halted the ICO by blockchain-based food review service Munchee, that had been seeking US$15 million, after concluding that the company was attempting to sell securities without the required registration.

The SEC last week shut down another ICO, charging fraud against Dominic Lacroix, a Canadian with a history of securities law violations, and his company PlexCorps, charging the company that took millions from investors, "falsely promising" a speedy, 13-fold profit.

"For the amount of bullishness surrounding cryptoassets, there appears to be an equal amount of doubt surrounding the vast majority of ICOs," said Canaccord analyst Michael Graham.