As the first bitcoin futures expire, price and volume concerns arise

The first bitcoin Cboe contracts expire Wednesday.
Concerns are raised that bitcoin futures being settled in cash could lead to price manipulation by aggressive end-of-day buyers and sellers.
Volumes and open interest have been fairly small in the Cboe and CME contracts.

It's a big day for bitcoin. The Cboe began trading the first bitcoin futures on Dec. 10, and that first contract expires Wednesday, and the initial CME contract expires on Jan. 26.

Investors will be watching to see how smoothly the Cboe contract closes.

Investors in many futures products will typically roll over their contract into the next month, but with bitcoin nothing is certain.

There have been some vague concerns that because bitcoin futures are settled in cash, it might be possible for investors to push around the futures contracts at the close simply by aggressively buying and selling. Maybe, but presumably if the futures prices got out of whack with the cash, arbitragers will step in.

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A series of smooth closes to these contracts over the next few months will greatly aid the transition to the potential next phase: bitcoin options. Options would add a whole new ecosphere of trading and market making, presenting another path toward respectability.

To get to options, however, traders need to see several months of smooth closes in the futures contract, as well as large open interest in the contracts, and that may be an issue. Options traders want large open interest because they will want to hedge using the futures.

And that may be the biggest problem for the path to bitcoin options: Volumes and open interest have been fairly small in both the Cboe and CME contracts.

"My sense is that they will go slowly to get to the options to get people more comfortable with the underlying product first," JJ Kinahan, chief market strategist at AmeriTrade, told me.

One thing for sure: Holding the contract from the opening to the close was a losing proposition. These contracts opened for bidding at $20,000 on Dec. 10. But on Tuesday, bitcoin was sitting right around $10,000, a fall of 50 percent.