Bitcoin speculation allowed for Thais

A 3D rendition of a macro view of a circuit board. Phillip Securities' bitcoin futures trade has been deemed legitimate by the authorities. Photo courtesy of 123RF

Phillip Securities Thailand has allowed Thai investors to speculate on bitcoin via an international global derivatives trading service, while Thailand's market regulators are in consensus that the move is legitimate.

Such service offers bitcoin futures trading on the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME).

Bitcoin futures kicked off in two of the world's major derivatives exchanges in mid-December.

Managing director Low See Kiong said some Thai investors are interested in bitcoin and able to accept the investment risks inherent in futures.

"Using bitcoin as an underlying asset on the CBOE and CME will lead to greater acceptance of bitcoin futures as they have reliable payment systems and are regulated by the US Securities and Exchange Commission," Mr Low said in a press release.

He said bitcoin futures are targeted at experienced investors who are interested in investing in bitcoin but do not want to purchase the cryptocurrency via websites or brokers that do not have securities licences.

Apisak Vongvanij, head of global markets at Phillip Securities Thailand, said customers who want to trade bitcoin futures must apply for the company's global derivatives service that will allow them to trade futures on 15 global futures markets, including the CBOE and CME.

Investors have to put money down to cover their investment margin and trading will be quoted in US dollars.

At the CBOE, the trading size will smaller than the CME because of smaller underlying assets, he said.

Bitcoin futures traded on the CBOE rely on one unit of bitcoin, while the CME relies on five bitcoin. This creates the need for investment margins, or money that investors need to put towards covering collateral for an underlying asset, as the CME is five times higher than the CBOE.

When asked by the Bangkok Post about the minimum money investors should place for one bitcoin futures contract, Mr Apisak said, "The margin placed is quite difficult to specify. It changes every day as bitcoin has high volatility in terms of price and market conditions, including underlying conditions during the day."

Mr Apisak said the margin to cover a contract of bitcoin futures at the CBOE, from its first trading day, has fluctuated between US$13,000 (418,512 baht) and $20,000.

"In principle, investors should prepare money as a buffer for price movement around 20-30% above the margin. The buffer might be lower for some, depending on the risk management of individuals. For example, if they have a strict policy to stop losses, the buffer may be lower than 10%," he said.

There were more than 1,000 bitcoin futures contracts traded at the CBOE in yesterday's morning session.

Mr Apisak said the global derivatives trade service was launched six years ago and Thais are seen as reasonably active investors.

Bitcoin futures traded on the CBOE and CME are under supervision of the US Commodity Futures Trading Commission and a Thai securities company can offer the overseas investment service since the markets are regulated by the International Organisation of Securities Commissions, said the Securities and Exchange Commission in its statement.

"Since this [investment] product is under the supervision of a standardised regulatory body, a point of concern in this case is not about fraud or money laundering, but rather how this product has high risks," said the statement.

The risks consist of cryptocurrency volatility, preparation to increase liquidity to meet the need to cover collateral of an underlying asset on a daily basis, and how bitcoin is a leverage investment product, it said.

Stock Exchange of Thailand (SET) president Kesara Manchusree said Philip Securities is a member of the CME and the SET has provided an opportunity for Thai investors to invest in overseas markets without any restrictions on investment assets.

"Investors have to study information and comprehend such investment products," said Mrs Kesara.

In the meantime, the Finance Ministry yesterday issued a warning flag against bitcoin companies, saying that they could be at risk of being involved with fraud, an informed source at the Fiscal Policy Office said.

In case if there is a complaint filed by investors that these companies have advertised or announced more than 10 persons guaranteed higher returns than the maximum interest rate provided by financial institutions and they have no operating licences, this would be equivalent to a fraud, the source said.

If found guilty, these firms are subject to 5-10 years in prison and 500,000 to 1 million baht in fines plus a daily fine of 10,000 baht, the source said.

Investors should exercise caution with cryptocurrencies to prevent themselves from being cheated, the source said, adding that they should thoroughly research operators, especially whether operators can generate returns or are outright running Ponzi schemes.

Given the void in regulation for cryptocurrencies, and that these virtual currencies are not legal tender in Thailand, investors must take the high risks into account when investing in cryptocurrencies.

The Finance Ministry's warning came after Deputy Prime Minister Somkid Jatusripitak asked the central bank on Friday to keep a close eye on bitcoin to prevent potential fraud involving the cryptocurrency.

Following the wild swings seen in bitcoin's trading value, especially over the last two months, Prime Minister Prayut Chan-o-cha instructed the Finance Ministry to educate people about the risks of bitcoin investment.

The Bank of Thailand, the Securities and Exchange Commission, the Finance Ministry and the Anti-Money Laundering Office have agreed to set up a working panel tasked with considering potential measures for handling problems that the digital currency may cause.