Initially only binary bets on Bitcoin will be allowed. Will more Binary Options brokerages soon follow?
IG Group, the largest UK spreadbetting company, is now offering Bitcoin binary options tradiing to their clients with an expiration of 31 May — those who go long will “win” a specified amount if Bitcoins end up higher on May 31 than when the bet is opened; and conversely, those who go short will win if the Bitcoin price is lower on May 31. Very simple.
So when will Bitcoin trading hit the “mainstream” retail FX sector? We think it will still be a while. Here’s why.
Bitcoin prices have seen heavy volatility (see one-month price chart below) ever since the Cyprus EU bailout crisis came to a head a few weeks ago. The price of Bitcoin has jumped from about $13 in January to a peak of $266 in early April, settling now in the $135 range. The largest Bitcoin exchange Mt Gox crashed more than once under the sudden heavy activity.
Bitcoin one month price chart. Source: BitStamp.
The ultra-steep volatility in Bitcoin prices will keep Bitcoin trading out of the FX mainstream for at least a little while. FX brokers and traders alike prefer products with lots of volatility, but Bitcoin volatility right now is just too much, and is just too dangerous for both sides. (That, as well as FX brokers’ inability to hedge Bitcoin positions).
However, Bitcoins are a good Binary Option product — even with all this volatility — as it is a much simpler product for both traders and brokers to manage. You either make a specified amount, or lose a specified amount, regardless of how much Bitcoin prices move. As such, we expect to see Bitcoin binary options to show up in the coming weeks at various binary option brokers, but not at “traditional” FX firms.
Stay tuned to LeapRate as we continue to follow this interesting market…