World’s second largest exchange – Nasdaq Inc – is reportedly planning an entry into the Bitcoin futures space by the second quarter of 2018.
The entire cryptocurrency market is buzzed with the talks about Bitcoin futures contracts. Afterall, the month-old announcement of Bitcoin Futures contracts by the CME Group has proved to be the major trigger for the unprecedented and crazy Bitcoin rally, as it doubled Bitcoin valuations in just less than a month. CME Group’s decision was basically an outcome of the ever-growing investor demand for bringing Bitcoin to the derivatives and futures marketplace.
Following CME’s announcement and an unstoppable Bitcoin rally, several financial institutions have turned optimistic about the future of Bitcoins and start releasing investor-friendly Bitcoin-based financial and investment products. In addition to the CME’s Bitcoin futures contract launching next week, famous U.S.-based futures exchange – Chicago Board Options Exchange (CBOE) – is planning to launch its own Bitcoin futures contract in early 2018. Now, Nasdaq Inc decides to join the party planning for a similar Bitcoin futures contract to be launched by the second quarter of 2018 according to the Wall Street Journal.
Nasdaq has been an early participant in the FinTech revolution and an open supporter of the Blockchain technology. Having understood the changing dynamics of the financial world, Nasdaq has collaborated with few players in the Blockchain space including Reality Shares to develop a new Economy Index, which registers all the top companies involved in developing and implementing solutions based on Blockchain Technology.
As per the person familiar with the matter, Nasdaq’s Bitcoin futures contracts will be listed on Nasdaq Futures NFX markets. This will eventually allow individual financial investors from the stocks markets try their hands on Bitcoin trading. However, one of the major differences of Nasdaq’s futures product in comparison to CME and CBOE ones is that it will be based on an index, which forms its prices basing on more than 50 Bitcoin exchanges. CME has already announced that its index price for Bitcoin will be based on CF Bitcoin Reference Rate (BRR), once-a-day reference rate of the U.S. dollar price of bitcoin, which currently uses data from four different Bitcoin exchanges. Similarly, CBOE’s Bitcoin futures price will be based on that provided by the digital currency exchange – Gemini Trust.
Also, one of the important issue, which we need to address considering Bitcoin products, is that how the exchange would work in case of events like “hard fork” i.e. when Bitcoin splits into two different currencies. Answering this, Nasdaq said that once the hard fork occurs, both the Bitcoin splits will enter the index for one day. The next day, the new token created through the hard fork would be reinvested into the original Bitcoin and the value of the index would be adjusted accordingly. Suppose Bitcoin is at $10000 and splits into two currencies with value $7000 and $3000 -the $3000 coin will be reinvested into the index with $7000 coin and the overall value of Bitcoin futures index will be adjusted.
Bitcoin’s introduction to the futures and derivatives marketplace is expected to contribute to the token’s stability. This will surely encourage a large number of investors making them feel comfortable to participate in less volatile market structure.
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