The Next Chapter for Bitcoin
On the ninth anniversary of Satoshi Nakamoto‘s white paper, one of the planet’s most respected derivatives suppliers, the CME Group, announced it would launch a controlled bitcoin futures marketplace.
Not to be understated, this is a critical moment in bitcoin’s history, and very simply, the future has never been brighter.
It is safe to say that 2017 has been a remarkable year. Almost each and every metric of adoption has revealed signs of exponential expansion: exchange users, wallet downloads, social media chatter, Google search trends, trading volumes, trades each day, etc.
The price has moved hand-in-hand with these metrics, and bitcoin has reached more people than ever before.
However, many of the existing trading platforms are struggling to stay online 24/7. (Even the CBOE site went down since it established its bitcoin futures marketplace.) In nearly all cases, these outages are not because of denial-of-service (DDOS) attacks, but the sheer quantity of organic traffic.
With this attention, the futures markets are effectively embedding bitcoin to the standard regulated markets, adding legitimacy for those that doubted its longevity or who think it is a fraud (See: Jamie Dimon).
Author Andreas Antonopoulos has said:
“I am uniquely allergic to the word ‘legitimacy,’ it makes me want to vomit when warmongering, war profiteering bankers use it to describe bitcoin. That takes a lot of audacity.”
And it does seem there is the reason to suggest Wall Street is not right behind this year’s growth.
On March 10th, the Bats BZX exchange had its own bitcoin ETF program denied by the SEC due to the unregulated and illiquid nature of bitcoin markets. The decision marked the conclusion of a yearlong travel for investors Cameron and Tyler Winklevoss, who’d long sought to bring such a product to market.
Bitcoin has faced many regulatory hurdles in its history, most in the hands of authorities: the LedgerX ETF denial, Chinese authorities stopping zero-fee trading and finally closing all exchanges.
On the other hand, the market capitalization of all bitcoin has risen from $20 billion to well over $300 billion in the nine months because of these improvements.
Fueling the fire
That is not to say that Wall Street isn’t bringing new interest to the marketplace — far from it.
The futures markets have shown that investors wish to acquire exposure to bitcoin in a regulated fashion without having to store the underlying asset. For the average investor, there’s a lot of risks is involved with holding bitcoin and this can be represented by the substantial premiums.
But apart from the pushing up the price and creating media coverage, the futures market may have profound effects on bitcoin.
Increasing demand will likely result in more futures markets and create greater volumes over time. There are currently over 15 applications pending for new ETFs, the volume is coming and to quote Antonopoulos again, There’s a long way to go:
“When you watch a trader eat a sandwich while he presses enter on a $10 billion trade, you realize how small this game is. We are going to have a lot of volume and that’s not bad, in fact that is the first step to reducing volatility.”
The 2017 bull operate combined with climbing strain has resulted in a continuing increase in bitcoin volatility within 2017, breaking the downward tendency.
The futures markets and prospective ETFs might be the antidote; broadening liquidity, shutting the spreads and decreasing the volatility, all which will lead to higher market efficiency, price discovery and finally guarantee bitcoin is going to be a better store of value and medium of exchange.
Knowledge is Power
However, irrespective of the volatility that is tempting, no complicated traders will leap right into bitcoin without bothering themselves with understanding. It requires a time and breadth of areas to comprehend bitcoin and its various intricacies — also as a small bit of faith.
To this end, the “schooling” stage is well underway, actually, the CFTC (Commodities Futures Trading Commission) established an internet information portal days before this bitcoin futures launching. Its intention is to educate the general public on electronic commodities.
This period of analysis and research will have a number of positive externalities ranging from effective regulation to higher funding allocation efficiency inside the crypto market. Thus far, investing in the bitcoin ecosystem has mainly been random.
A greater comprehension of bitcoin will foster an ecosystem which allocates funds with increased efficacy, producing the value opinions loop more widespread in cryptocurrencies like ethereum.
Each wholesome futures market wants a combination of speculators and hedgers that maintain the underlying resources.
These days, the bitcoin futures market is chiefly constituted of speculators, and there’s a deficiency of pure vendors because most traders would need to bare short (brief without holding bitcoin). At Interactive Agents, precautions are so good you’ll need five times the security to create a trade.
To estimate Richard Heart:
“The history of bitcoin is shorts getting rekt, constantly.”
Nonetheless, the ability to hedge the price of bitcoin alters the risk profile of other areas of the industry, especially mining.
Anticipate more risk-averse organizations to venture into the mining industry. Digital Power is not alone and many tech businesses are leaping aboard the mining bandwagon.
Together with the ability to short sell bitcoin into “lock” mining profits, these firms can do so with drastically reduced risk. For companies like Digital Power, tools that provide shorting on indices will be priceless. If this trend continues, Western mining businesses could start to chip away at the currently centralized mining hash power, with 80% of it residing in China.
However, it is going to take time for amounts to construct and spreads to close as just a limited number of sophisticated investors are currently capable of carrying out the insecure cash and carry arbitrage. No doubt that doubts surrounding forking, regulation, and scaling is likely to make bitcoin’s trip to an efficient marketplace bumpy.
The most intriguing portion of bitcoin’s rise to the controlled market is that it took eight decades of clamor, belief and HODLing.
To be sure, though, there’s more hard work ahead.