How Bitcoin Could Trigger a Lehman-Style Crisis

Bitcoin prices soared to a new high last week on the news there will be a futures market for the currency starting on Dec. 10. But not everyone is optimistic.

According to billionaire Thomas Peterffy, CEO of the brokerage giant Interactive Brokers (ibkr), there’s a small but very real possibility that a futures market for the volatile crypto-currency will cause the financial system to buckle and trigger a crisis similar to 2008.

Peterffy told Fortune he’s relayed his concerns, which he described in a full-page letter in the Wall Street Journal, to the head of the country’s commodities regulator, but was told the agency can’t do anything to slow down the launch of the new bitcoin products.

Clearing Houses Pose ‘Lehman’ Style Risk

When banks loaded up on too many worthless mortgage-backed securities, it triggered a series of insolvencies in 2008 — most notoriously at Lehman Brothers — and a full-blown financial crisis. Could bitcoin set off something similar?

Peterffy, who is one of the world’s richest men and is known as “the father of high speed trading,” believes a 2008-style chain reaction could arise from the bitcoin futures market. He fears the soon-to-be-launched futures contracts, which are intended to allow traders to hedge the price of bitcoin in the same way they do barrels of oil, lack adequate guardrails.

The focus of his fear is the clearing houses that settle futures contracts, and serve as backstops in the event one of the parties defaults on their obligation. If the price of bitcoin falls dramatically (as it has done in the past), the clearing houses could be left holding the bag for traders that bought contracts on the assumption the price would increase — and can’t cover the shortfall.

While Peterffy says larger clearing houses could absorb this risk, he fears smaller ones might not. In the worst case, they would burn through their liquidity trying to cover bad bitcoin bets, and be unable to cover their obligations to clear futures contracts for other assets.

“The issue is they’re putting bitcoin in the same basket as U.S. Treasuries, stock index futures, and all the really serious products,” said Peterffy.

He’s not reassured by the fact the exchanges that will offer the futures contracts, CME Group Inc. (cme) and Cboe Global Markets (cboe), will ask customers to post an usually high margin requirement of 35% for bitcoin. Peterffy says that price swings above that range will lead to defaults, and force clearinghouses to turn to the market to cover their position, which will in turn cause bitcoin prices to fall further…

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