This Is Not Investment Advice

Rough Trades: Digital Derivatives Hit the Bitcoin Markets as Wall Street Bankers Take Interest

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THE BEST WAY TO FIND serious traders of the digital currency Bitcoin is to log onto Internet Relay Chat—that bare-bones, plain-text experience that hasn’t changed much since its creation in 1988—around midnight, and jump into one of the many conversations dedicated to the phenomenon. Bitcoin, a decentralized payment system that approximates cash, has been quickly gaining popularity since May, when its bit part in a Gawker story about an “underground website where you can buy any drug imaginable” turned into a starring role in stories like Fast Company’s “Funny Money: Is Bitcoin the Future of Currency … Or a Total Scam?”

One indication of how far the currency has evolved: the emergence of Bitcoin derivatives. Despite reluctance by merchants to embrace the new money and a near-constant stream of crises, from cyberattacks to technical failures, the two-and-a-half-year-old technology—carefully designed by a group of anonymous programmers to serve as a standard for digital payments without the need for a central authority—seems to have staying power. This is especially true among its investors, who have graduated from simple transactions like buying and selling to negotiating options and futures contracts. Read More