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ERROR: type should be string, got "https://www.wsj.com/articles/bitcoin-rally-fuels-market-in-crypto-derivatives-11562146202\nBitcoin Rally Fuels Market in Crypto Derivatives\nNew structured products draw concern as digital currency climbs back above $10,000\nGSR, a cryptocurrency-trading firm co-founded by former Goldman Sachs oil-derivatives trader Richard Rosenblum, has unveiled several structured products linked to bitcoin since March. Photo: José A. Alvarado Jr. for The Wall Street Journal\nAlexander Osipovich\nBiographyAlexander Osipovich\n@aosipovich\nalexander.osipovich@wsj.com\nJuly 3, 2019 5:30 am ET\nWall Street has dreamed up an array of derivatives tied to stocks, commodities and mortgages. Now such contracts are being developed for bitcoin.\nIn recent months, some cryptocurrency firms have begun touting structured products linked to the price of bitcoin, with complex formulas determining how much they pay out.\nIt is still a small market, and the firms say their products aren’t aimed at mom-and-pop investors. But the trend is raising red flags among some market veterans, especially as bitcoin’s rebound above $10,000 has rekindled investor interest in the digital currency.\nCraig McCann, a former Securities and Exchange Commission economist, warns that it is a bad idea to take bitcoin—a highly volatile, speculative asset traded on unregulated exchanges—and use it as a building block for complex instruments.\n“There are all kinds of problems associated with any structured product tied to bitcoin,” said Mr. McCann, who now leads Securities Litigation & Consulting Group, a firm that provides expert witnesses for companies involved in securities lawsuits. “It doesn’t belong in anybody’s portfolio.”\nCipher Technologies, a crypto hedge fund in Greenwich, Conn., began offering structured products on bitcoin earlier this year. The firm has done several such deals, mainly with entities that manage money for wealthy families and individuals, said Cipher’s founder and managing partner, Gerald Banks.\n“We would not fathom pushing this to anyone who would not be fully versed in the risk or in the nature of the underlying asset,” said Mr. Banks, who helped develop Merrill Lynch’s structured-products business in the 1990s and early 2000s.\nOne of Cipher’s products is a bond-like contract known as a reverse convertible. In such a deal, the client loans money to Cipher in return for monthly interest payments, with Cipher paying back the loan once the contract expires. But before then, if bitcoin falls below a predetermined level—a 19% drop, in one version of the product from earlier this year—then Cipher returns the principal to the client, minus the amount bitcoin has lost.\nGSR, a cryptocurrency-trading firm led by former Goldman Sachs Group Inc. commodities traders, has unveiled several new bitcoin structured products since March. These include variance swaps, which pay out for their buyers if bitcoin’s volatility increases, and binary options, which pay out either a fixed sum or nothing, depending on whether bitcoin trades above or below a specified price.\nMost of GSR’s revenue comes from algorithmic trading of digital currencies, and the firm has only done a small number of structured-products trades, said the firm’s co-founder and co-head of trading, Richard Rosenblum, a former global head of oil-derivatives trading at Goldman.\nCryptocurrency Derivatives Face U.K. Ban\nBitcoin’s Surge Leaves Smaller Digital Currencies in the Dust\nThis Fund Is Riding Bitcoin to Top\nBitcoin Is Back Above $10,000 and Investors Say This Rally Is Different\nStructured products typically involve derivatives created by banks that would otherwise be hard for their clients to buy or sell elsewhere. But the products are sometimes hard to understand and difficult to trade. So abrupt market moves can cause losses, as Wall Street discovered when the U.S. housing meltdown caused a crash in some products tied to mortgages.\nBitcoin’s price moves are even more extreme, adding to the risk. “We’ve seen some players blow up,” said Darius Sit, managing partner of QCP Capital, a Singapore-based trading firm active in cryptocurrency options.\nCrypto derivatives traders face another risk: regulation. In 2010, Congress passed the Dodd-Frank Act to rein in the market for off-exchange derivatives, putting most of it under the oversight of the Commodity Futures Trading Commission. Later, the agency said it had jurisdiction over bitcoin.\nThat means bitcoin derivatives fall under CFTC rules, which require that derivatives trades involving a U.S. firm be reported to swap data repositories. These are giant databases of trades, designed to give the government visibility into what used to be an opaque market.\nDo bitcoin derivatives merit more regulatory scrutiny? Why or why not? Join the conversation below.\nEdward Woodford, chief executive of Seed CX, a startup that runs a cryptocurrency exchange, said some crypto-derivatives firms use entities domiciled outside the U.S. to book trades and operate as though they are exempt from the reporting rules.\nThe CFTC says it monitors such trading. “We are closely following how cryptocurrency is being traded, including in its derivative forms that would be subject to our regulatory jurisdiction,” James McDonald, CFTC enforcement director, told The Wall Street Journal.\nDeliberate efforts to evade the reporting rules by trading through offshore affiliates would attract scrutiny from CFTC enforcement, he added. “You can’t evade our jurisdiction that way,” Mr. McDonald said.\nSign up to receive our Markets newsletter every morning in your inbox.\nIn an original WSJ documentary, markets reporter Steven Russolillo ventures to Japan and Hong Kong to explore the universe of cryptocurrencies. His mission: create WSJCoin, a virtual token for the newspaper industry. Image: Crystal Tai. Video: Clément Bürge\nWrite to Alexander Osipovich at alexander.osipovich@dowjones.com\nShow Conversation Hide Conversation (35)\nCrypto trading firms are offering complex derivatives tied to bitcoin, raising concern as the digital currency rallies above $10,000"