KT Fintech Blog

The KT Fintech Blog provides insights into how the emergence of fintech is fundamentally changing virtually every aspect of the financial services landscape and how traditional businesses navigate this rapidly evolving industry.

Category: Bitcoins

Posted on Tuesday, December 19 2017 at 12:26 pm by
Are Bitcoin Futures Foreshadowing Faster Mainstream Adoption?

Written by Michael J. Breslin

Bitcoin futures surged as much as 26 percent in their December 10 debut on Cboe Global Markets, creating traffic on Cboe’s website that was so heavy it caused temporary outages. About twenty trading firms actively participated, with the notional value of contracts traded in the first eight hours totaling around $40 million. Although that is a drop in the bucket compared to the global $1.1 billion of bitcoin traded against the U.S. dollar during the same eight hour period, it appears to be just the tip of the iceberg for futures trading in the world’s most popular cryptocurrency. Cboe’s biggest rival, CME Group, recently joined the movement by launching a competing product on December 18, and Nasdaq Inc. has plans for its own bitcoin futures contract in 2018 (although no hard date is set).

So what does this mean? At face value, it is a milestone in the acceptance of bitcoin by the mainstream investing world, spurred in part by bitcoin’s meteoric rise this year. And while skeptics still abound, the availability of futures contracts may now provide an opportunity to burst what they see as a bubble. According to Craig Pirrong, a business professor at the University of Houston, the availability of futures contracts makes it easier to short bitcoin, which “might keep the bitcoin price a little closer to reality.” But whichever way you want to bet on the cryptocurrency, it seems there is no shortage of interest in bitcoin futures among U.S. exchange companies. Earlier this month, Jeff Sprecher, CEO of Intercontinental Exchange Inc., said at an investor conference that “we may be stupid for not being first” to launch a bitcoin futures contract.

Currently, the bulk of bitcoin is traded on a network of unregulated exchanges, which present obstacles that have kept out big money managers like mutual funds. But the new futures contracts should thrust bitcoin more squarely into the realm of regulators, banks and institutional investors. Cboe and CME got permission to offer the contracts through the “self-certification” process, in which they pledged to the Commodity Futures Trading Commission (CFTC) that their bitcoin futures products do not run afoul of the law.

Despite the somewhat smooth rollout of those products, there is still a view that bitcoin derivatives are premature, given the cryptocurrency’s volatility and lack of transparency in the market. To that point, Thomas Peterffy, the Chairman of Interactive Brokers Group Inc., wrote a November open letter to CFTC Chairman J. Christopher Giancarlo, arguing that bitcoin’s large price swings mean its futures contracts shouldn’t be allowed on platforms that clear other derivatives. More broadly, SEC Chairman Jay Clayton recently reissued a cautionary message on cryptocurrencies and initial coin offerings (ICOs) to Main Street investors, which was quickly endorsed by Mr. Giancarlo.

In sum, the start of futures trading is an important step for bitcoin’s shift towards mainstream investing, but it could be some time before the cryptocurrency becomes a key part of investor portfolios. While the future of bitcoin futures is still hazy, it is clear that more and more big money institutions are warming to the idea, and it will be important to stay abreast of how the market reacts to these new products, as well as the reactions of regulators.

Posted on Tuesday, November 28 2017 at 9:00 am by
Showdown Over CFPB Leadership Continues

Written by Eamonn Moran

In an interesting turn of events over Thanksgiving weekend, outgoing Consumer Financial Protection Bureau (CFPB) Director Richard Cordray promoted CFPB Chief of Staff Leandra English to the position of CFPB deputy director on November 24, 2017. This move was intended to allow Ms. English to take advantage of a provision of the Dodd-Frank Act that allows the deputy director of the CFPB to “serve as acting Director in the absence or unavailability of the Director.” The deputy director is appointed by the director, and does not need Senate confirmation. Later on Friday, President Trump announced that he is designating Office of Management and Budget (OMB) Director Mick Mulvaney as acting director of the CFPB, a position he would serve in until a permanent director is nominated and confirmed.

Late Sunday evening, Deputy Director English filed a lawsuit in the U.S. District Court for the District of Columbia seeking to halt President Trump’s appointment of Mulvaney, who is also named in the lawsuit. The Justice Department was expecting to file an order last night responding to the lawsuit. Judge Timothy Kelly, a Trump-appointed judge who was confirmed by the Senate in September, said he would review the Justice Department’s filing and decide on the next steps in the case after that.

The core legal question is whether the President has the authority under the Federal Vacancies Reform Act (FVRA) to designate Mulvaney as the acting director of the CFPB following the resignation of Cordray as of midnight, Friday, November 24, 2017, even if the deputy director otherwise could act under 12 U.S.C. § 5491 (b)(5) [the Dodd-Frank Act]. Mary McLeod, the CFPB’s General Counsel, issued a written memo to CFPB staff on Saturday confirming her oral advice to the CFPB’s senior leadership team that the answer is “yes.” She advised all CFPB personnel “to act consistently with the understanding that Director Mulvaney is the Acting Director of the CFPB.” Her reasoning was based on statutory language, legislative history, precedent from the Office of Legal Counsel at the Justice Department, and case law, which in her view, “all point to the conclusion that the President may use the Vacancies Reform Act to designate an acting official, even when there is a succession statute under which another official may serve as acting.” As General Counsel for the CFPB, it is McLeod’s legal opinion “that the President possesses the authority to designate an Acting Director for the Bureau under the FVRA, notwithstanding § 5491(b)(5).” The Justice Department’s Office of Legal Counsel supports this position as well, noting that the President “may designate an Acting Director of the CFPB under 5 U.S.C. § 3345 (a)(2) or (3), because both the [Federal] Vacancies Reform Act and the office-specific statute are available to fill a vacancy in that office on an acting basis.”

Mulvaney addressed reporters yesterday afternoon, where he announced a 30-day hiring freeze effective immediately and a 30-day “immediate freeze on any new rules, regulations and guidance.” This could stall, at least temporarily, the CFPB’s debt collection rulemaking, among other projects.

Both Mulvaney and English were present at the CFPB yesterday morning. According to the White House, Mulvaney was given full access to the CFPB director’s office with “full cooperation” from its staff. However, both English and Mulvaney issued dueling emails to staff yesterday morning, and both emails were signed “acting director.” Mulvaney’s email asked CFPB staff to disregard English’s instructions and to inform the CFPB’s general counsel of any communications from her related to Bureau duties. A protest is planned at the CFPB today, and Senator Elizabeth Warren (D-MA) is expected to make remarks. In what appears to be somewhat of an internal resolution, the CFPB’s website currently has Mulvaney listed as Acting Director.

Stay tuned for further updates as additional developments occur!