After the debut of Bitcoin Futures on Sunday, there is a fierce debate that has started in the world of cryptocurrencies. Despite the protests by financial institutions like Citigroup, JP Morgan and other big stakeholders in the financial market, CFE – CBOE Futures Exchange went live with their Bitcoin Futures on Sunday. Another broking group, The CME Group (CME) is all set to go live with its own bitcoin futures on 17th December, 2017.
Now the debate that follows brings two interesting viewpoints, many industry experts believe that the advent of broking houses and exchanges will help institutional investors and professional traders to enter the market and legitimize it which will further transform the bitcoin. Whereas, the other argue that it presents a systematic danger to investor’s money because of the underlying volatility of bitcoin and premature nature of contracts.
Effect on Bitcoin’s Price after Bitcoin Futures Start Trading
The first and foremost effect will happen on the prices of the cash bitcoin exchanges. Trading of futures will give rise of arbitrage and hedging leading to a large group of speculators who will arbitrage bitcoin at different prices, buying on one exchange and selling on another and earning the difference. Over time, the prices might become stable but in a short run, we might see a few flash crashes in the price of bitcoin.
As more exchanges are expected to take part in this, a greater inflow of funds is ensured. Further, we could reach a stage where the usage of bitcoin will get normalised. Many of those who will sell future contracts to people wanting to hedge their short position by buying spot Bitcoin will create a scenario where there will be more demand for something which is already scarce. Thus, leading to an increase in Bitcoin’s price
Bitcoin Future Contracts would allow traders to bet on a “going long” or “going short” direction. Till now, it was extremely difficult to short bitcoin, the inclusion of these exchanges will make it easier. A future market is a zero-sum game. For every long there will be a short. An investor’s loss would be another investor’s gain. In the coming few months, we might see large institutional money increasingly influencing bitcoin’s price.
Also, as Wall Street is expected to invest huge amounts in Bitcoin, any news relating to Wall Street and Bitcoin will now have major effects on its price. That might be bearish or bullish.
Bitcoin Futures – What’s ahead?
Bitcoin has seen a lot of developments over the last few months. Back to back forks, expanding use cases, increase in acceptability and various factors have made bitcoin an extremely lucrative investment even at such a rising price.
With Bitcoin futures kicking in, there are a lot of angel and institutional investors who are going to invest in Bitcoin. Also, success of CME and CFE might also encourage other financial institutions to opt for Bitcoin related investments. But one thing that we are sure of, is the fact that cryptocurrencies are becoming much more accessible to the masses. With increase in exposure and a case where large exchanges and financial institutions exercising huge control over the market, we might soon see various financial bodies taking extreme steps to save the interests of the investors.
Bitcoin Futures is just a start. There is a long road ahead.