cryptocurrency, bitcoin, ethereum, crypto
Ever since reading Liar’s Poker I’ve always wondered how insane it must have been to live through the creation and explosion of the mortgage bond market.
Today, the Chicago Board Options Exchange (CBOE) opens the first Bitcoin futures market ever.
And the Chicago Mercantile Exchange will open its Bitcoin futures trading next Monday, December 18.
We’re living through the creation of new financial markets.
WTF’s A Future?
A futures contract is an agreement to buy or sell an asset at a certain time in the future. Basically, you bet on the future price. For example, if you think a stock is going to go up tomorrow, you can make a contract to buy it tomorrow.
What Do The Futures Hold For Bitcoin?
Investors will be able to bet on changes in Bitcoin prices without actually buying Bitcoin itself. Many investors don’t want to go through setting up their own private wallet or have hesitations about BTC.
But being able to buy futures now will give them a way to get in on the party. This means more money is going to flood into the Bitcoin industry, albeit not directly into Bitcoin.
How will this affect the value of Bitcoin?
The introduction of a Bitcoin futures market could devalue Bitcoin. Why? Three reason:
First, there will be new, additional money pouring into Bitcoin futures that would not have gone into Bitcoin. This "new" capital may offset the downsides discussed above and boost overall BTC value.
Second, if the new BTC futures markets take hold, it will probably have a stabilizing effect on the price of Bitcoin. Kind of significant for one of the most volatile assets in recent history.
Third, the existence of legitimate Bitcoin futures markets on the Chicago exchanges also adds a lot of legitimacy to Bitcoin and cryptocurrency in general. For example, it will put pressure on the SEC to approve a Bitcoin ETF, which it hasn’t done it.
Most Likely Outcome?
Whether Bitcoin has a bright future doesn't depend on futures.
Most likely, “other factors outside of Bitcoin Futures being created will have more of an impact on what happens to the price of Bitcoin.”
The creation of Bitcoin futures may have positive or negative effects in the short-term…but the other substantive stuff going on with Bitcoin (like the recent roll out of the Lightning Network) is what matters in the long run.
TL;DR: The introduction of Bitcoin futures will have good and bad effects, but mainly, it's just validation the industry is growing and entering mainstream finance.
(On a completely unrelated note, “critical mass” is: your high school history teacher reaching out to you for advice on investing in Bitcoin…)