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hiawatha Bray | tech lab

Despite run-up, bitcoin’s future is still uncertain

A visual representation of Bitcoin.Dan Kitwood/Getty Images

It’s official. Bitcoin has a future. But for how long?

On Friday, CME Group Inc., the massive financial exchange in Chicago, said that it will soon offer futures contracts for bitcoins, the computer-generated digital currency that has surged in value over the past year, and stood at around $10,800 on Friday.

CME’s announcement is the latest evidence that the world’s masters of money are serious about incorporating bitcoin and similar “cryptocurrencies” into the global economy. And it goes a long way toward explaining how a kind of money that can’t buy you a hamburger at Five Guys has managed to become one of the most desirable currencies on earth.


But it’s also possible that CME’s move will only make matters worse when the bitcoin bubble eventually bursts.

Bitcoin and other cryptocurrencies aren’t like dollars or euros, which are generated by government-run central banks. Instead, they’re created by worldwide networks of privately owned computers. The machines run complex software that generate the digital money, and track its use by recording a “blockchain,’ an encrypted record of transactions that can never be altered, deleted, or lost. When someone spends a bitcoin, the blockchain records the transaction to ensure he can’t spend that same bitcoin again.

Bitcoin was the first of these currencies, but anybody who knows how to write the necessary software can create their own. Today, there are hundreds of digital currencies, most of negligible value. A few, like Ethereum, Ripple, and Dash, are valued in the billions, but none can touch bitcoin’s total value of about $180 billion.

I’ve been writing about bitcoin for at least three years, fascinated by the concept but skeptical about its future. In July, when I wrote about convenience store ATMs that sell the cybercurrency, I shoved in $20 and in exchange, received a mere $16.80 in bitcoin; the rest was devoured by fees.


It didn’t matter. As of Friday, my tiny investment had grown to about $70, a 250 percent gain, and I almost wished I’d fed more money into the machine. Almost, but not quite. Things might easily have gone the other way, like when bitcoin fell from $1,200 in 2013 to less than $200 two years later.

When I spoke to several candid observers of the cryptocurrency scene, most repeated variations of Hollywood screenwriter William Goldman’s famous line: Nobody knows anything.

“Nothing would surprise me if bitcoin ran up to $20,000 by the end of the year,” said Robleh Ali, a research scientist at the MIT Media Lab’s Digital Currency Initiative. On the other hand, he added, “if it fell to $4,000 it wouldn’t surprise me.”

David Yermack, a professor of finance at New York University’s Stern School of Business, said, “I don’t think it’s inevitable that the price comes down at all.” But Yermack added that the past year’s rapid run-up in value can’t possibly continue.

The news out of Chicago offers hope that some volatility can be wrung out of the system. With futures trading, bitcoin investors will be able to make bets on both sides. Investors might obtain contracts to buy or sell bitcoins, say, three months from now, at a price that’s lower or higher than its current price. They’ll be able to diversify their investment, ensuring they’ll get some of the benefits if the value of bitcoin keeps rising, and that they won’t be wiped out if it falls.


That’s the theory. But Preston Byrne doesn’t buy it.

“It’s outrageous what CME is doing,” said Byrne, a fellow at the Adam Smith Institute, a free-market think tank in the UK and former chief operating officer of Monax, a blockchain software company in London. He pointed to a statement issued Friday by the US Commodity Futures Trading Commission, in which the agency admitted that it has little power to keep bitcoin markets honest, and warned of “the potentially high level of volatility and risk in trading these contracts.”

“This is the understatement of the century,” said Byrne.

He believes media hype is attracting individual investors to the bitcoin market. Some are gambling their retirement funds, while others are buying the currency with credit cards, saddling themselves with high-interest debt. The bitcoin boom, said Byrne, “exhibits all of the classic features you would expect from a financial mania.” He is sure it will fall, and he worries that the CME’s decision to permit futures trading will ensure that damage from the crash will spread to other financial markets.

But for now, nobody’s listening.

Hiawatha Bray can be reached at hiawatha.bray@globe.com.