Margin and Leverage for Bitcoin Trading – YIKES!

Oh good. The past several weeks have seen bitcoin become extremely volatile with the SEC denying an ETF application and now talk of a developer’s revolt which may cause a ‘hard fork’ (spin off). So, how to get big investors and institutions to get more involved? Get ready……..margin and leverage on bitcoin trading???? Words just can’t describe that thought process. Oh, wait, how about ways to hedge? (see CME and CryptoFacilities for real thoughts)

“Bitcoin believers argue the famous crypto-currency would be more stable—and more valuable—if only hedge funds and other institutional investors would get with the program and buy some. But so far, many big fish have stayed away—in part because bitcoin doesn’t provide the financial products and regulatory compliance they require.

This could start to change, however, as more companies shape their services for traditional investors that want exposure to bitcoin and other digital currencies. The latest examples comes from San Francisco-based Coinbase, whose GDAX exchange—a trading platform backed by the New York Stock Exchange, venture capitalists like Andreesen Horowitz and others—announced on Monday the launch of margin trading.

The new feature, which lets investors leverage their bets on bitcoin by a factor of three, is significant because the ability to trade on margin is widely used when trading traditional assets, and it is something institutional investors expect, according to Coinbase vice president Adam White.

A few other U.S. digital currency exchanges, including Kraken, offer margin trading. But White, in an interview with Fortune, says Coinbase’s GDAX (for Global Digital Asset Exchange) is different because it has the state licenses that asset managers want to see before they lay down clients’ money.

GDAX expects its combination of margin trading and regulatory compliance will attract hedge funds, high net worth individuals, and market makers like Cantor Fitzgerald. Down the road, White thinks digital currency will also attract investment bank “whales,” and that the likes of Goldman Sachs and J.P. Morgan will set up dedicated trading desks for bitcoin like the ones they have for oil, gold, and other types of foreign exchange…”

Read Full Article at