Jeff Fawkes is a seasoned investment professional and a crypto analyst. He has a dual degree in Business Administration and Creative Writing and is passionate when it comes to how technology impacts our society.
The futures market can be the cause of development efforts around Bitcoin, one of the crucial hedging assets like gold or dollar.
In the last few months, Bitcoin futures trading is on the rise, beating up to 50% of the total spot market on 13 well-known exchanges. The futures market helps to keep the price less volatile, and it increases liquidity via the attraction of new investors.
Wise actors always made predictions that cryptocurrencies would co-exist with the current banking and stock markets. They are not doing any substantial harm to banks and classic exchanges. Instead, cryptocurrencies add fungibility and privacy when it’s urgently needed. The tough riddle is how to make the traditional markets, and crypto markets make profits together and establish transparent accounting?
First Steps towards Adoption by Institutional Capitals
Back in 2017, the crypto futures market achieved significant traction. The cash-settled futures launched by CBOE, as well as by CME, showed the interest of the public seduced by the growing industry’s insane profits. LedgerX introduced their offer too – options and physically-settled futures approved by CFTC. Having a positive previous history of trades, those entites had their products deployed in a lawful manner.
The start was looking like the recent Bakkt launch, it was slow and led to CBOE’s intent to close the offering. But later the investors came in, raising the volumes every 18 months. The real-money venture investors and companies are transacting with each other via this market till now. They wish to establish sustainable relationships with recognizable entities, as well as to avoid volatility, uncovered risks of the growing industry, and illegal coins.
Currently, there are about 10 billion dollars of real investment made to the cryptocurrency markets. The 200 billion market cap is actually an unstable profit that can vanish anytime soon. When the classic investors come into the market, this may not raise the price but will undoubtedly empower the current prices. The more money goes into the market, the better the cryptocurrencies will flow in the longterm.
Millions of People May Soon Be Able to Trade Bitcoin Derivatives
Chicago Mercantile Exchange introduces a tick size of 5 or 25 dollars per option. Each such contract refers to one of their own futures contracts worth 5 BTC. Bitcoin options will be a way of hedging the risks against other markets. The CME Bitcoin futures will expire after a specific period, and if the trader didn’t liquidate his position, the contract would automatically convert itself to its cash equivalent.
On the first day of Bakkt trading, the platform received an offer worth 12 BTC. But after a few days, the trading activity increases, and people understand that the institutional money will slowly flow into the market.
ICE Bitcoin Futures to Establish the Currency as Digital Gold
Sprecher noted that Bitcoin is going to show its real-life use cases to become the mainstream idea. He said:
“We don’t think that the whole space will be relevant and grow unless there are real use cases and we do think that a use case is going to be the digital transfer of value through payments”
Interestingly, how he seems to have forgotten that cryptocurrencies are a value transfer system already working since 2009. Yet, the occasional confirmation delays caused by mempool bloats may indeed drive people to the contracts markets, as well as to the altcoins (again?). The scalability issue pushes hard, but it cannot ”destroy” Bitcoin.
Sprecher admits: overtime, payments worldwide will depend on blockchains, which means that merchants would stop using derivatives like cash or futures. They will be accepting bitcoin and other coins directly from the customers, forming a chaotic picture of decentralized ecosystems. Bitcoin, in such a world, can serve as a reserve currency of the Internet economy. As a “virtual gold”, it will back many virtual coins and content-related companies.