Bitcoin Bears Unleashed? Interactive Brokers Folds, Will Allow Clients To Short Futures

A week after Thomas Peterrfy, the founder, Chairman and CEO of Interactive Brokers and one of the 'giants' of electronic trading in US financial markets warned that:

"the introduction of bitcoin futures into a clearing house could increase systemic risk."

And just days after the firm said its

"clients would be unable to short the bitcoin futures market because of the extreme volatility of bitcoin."

Interactive Brokers has reportedly flip-flopped and as Bloomberg reports, plans to let bitcoin bears bet against the digital currency’s recently debuted futures contracts.

Starting this week, the brokerage will allow its users to take short positions on bitcoin futures under certain conditions, according to company spokeswoman Kalen Holliday, who said the decision was made “in response to client demand.”

 

Interactive Brokers has accepted long positions with a margin requirement of at least 50 percent since the contracts debuted Sunday on Cboe Global Markets Inc.

That is great news for the arbs who can now actively compress the $1000 Bitcoin futures premium...

Of course, as Bloomberg notes, shorting bitcoin futures, or betting that their price will fall, is potentially an even riskier strategy.

It’s possible to lose an unlimited amount of money on a short position, particularly if the cost of the digital currency and its derivatives continues to climb.

Bloomberg reports that Interactive Brokers has a few requirements for shorting bitcoin futures, which seem to suggest this is not quite as cut and dried a short futures position as 'bitcoin bears' would hope.

  • the spread must be one-to-one, and
  • the short leg must have the earlier expiry date so that once it expires the surviving leg will be long...
  • Trading won’t be offered in retirement accounts or to Japanese residents.

Sounds more like IB is allowing traders to short the front-month against the back-month - not exactly what most were hoping for, but it's progress perhaps. For now, the news has prompted some selling pressure across the complex.

So prepare for the pending short squeeze as all 'the smartest people in the room' pile in short on this no-brainer bubble...