Futures Market for Bitcoin Gives the Currency Staying Power, But May Hurt Price

Matt Thalman - INO.com Contributor - ETFs


Futures contracts in the crypto-currency Bitcoin (CME:BRTI) are expected to begin trading on the CBOE on Dec. 10, after getting the green light last week from regulators. That gives the CBOE a week of exclusivity. The exchange operator's larger Chicago rival the CME has said its contracts will begin trading Dec. 18.

When the futures are offered, more investors will be given access to the crypto-currency. Institutional investors for one will now be able to build a position in Bitcoin through the use of futures trading.

Furthermore, retail and small investors will have a much easier time gaining access to the fast-growing asset class through the use of futures, but certainly, if Bitcoin Exchange Traded Funds, which would use the futures, are approved. Instead of having to go through lesser-known crypto-currency exchanges and using credit cards to make purchases of Bitcoins, investors will simply be able to use their brokerage accounts and buy and sell futures contracts through the well respected and trustworthy CME.

More so, many believe that once the CME is offering Bitcoin futures, Exchange Traded Funds will be permitted to offer Bitcoin investments through the use of futures.

While the Bitcoin ETF’s may still be some ways down the road, the fact of the matter is, Bitcoin is growing in popularity and acceptance from the investment community. Although I should note, there has yet to be any formal announcements for or against Bitcoin and other crypto-currencies from the regulatory community.

But, now that it appears Bitcoin will have a futures market which is being touted as a low volatile way to invest in the currency, the argument that Bitcoin will no longer exist shortly is becoming less likely. Having Bitcoin futures trading on the world’s largest futures exchange immediately gives it staying power, but it could hurt the currencies price in the future.

Bitcoin (CME:BRTI) in and of itself has very little relevant utilitarian application. The same could be said about a U.S. dollar bill. But, unlike Bitcoin, the U.S. dollar is a promissory note backed up by the U.S. Government and all of its power. Now other things which can be used as currencies, such as gold, silver, diamonds, even other commodities like grain, beef, or lumber, all have value in other ways than as a currency as they are tangible assets that can be used for tangible purposes.

The simple fact that silver can be used as jewelry or an electrical conductor gives it more value than say a typical fiat currency and it also gives it more stability because if the price of gold falls too low buyers will swoop in and prop the price back up as its electrical conductivity value proposition becomes more attractive.

Now as for Bitcoin, the price thus far in its existence has simply been a factor of supply and demand. Moving forward that is unlikely to change, but what very well could change is the demand for actual Bitcoins. Before there is a futures markets for Bitcoin or Bitcoin Exchange Traded Fund, investors only way to invest in the crypto-currency is by actually buying Bitcoins. This limited investment opportunity has caused an unbalancing of the supply and demand.

When demand for a product is much higher than the supply, the price goes high. The wider the spread between demand and supply grows, the faster and higher the price will increase.

Year-to-date, the price of Bitcoin, has increased more than 700%. During that same time, the price has fallen more than 40% once and more than 20% a number of times.

Once the CME begins offering investors the ability to gain exposure in Bitcoin without actually buying Bitcoin’s, (this is because Bitcoin futures contracts will be cash settlements, meaning actual Bitcoins will never change hands), it’s possible the demand for Bitcoin will fall back in line with the supply. Furthermore, we could see demand and supply even swing towards oversupply when and if Bitcoin ETF’s are approved since retail investors whom may not fully understand how to trade futures would now have an easy way to invest in Bitcoin’s.

Regardless of what happens, Bitcoin (CME:BRTI) investors should keep a close eye on the start of Bitcoin futures trading and the possibility of Bitcoin futures-based ETF’s.

Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor did not hold Bitcoin at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

13 thoughts on “Futures Market for Bitcoin Gives the Currency Staying Power, But May Hurt Price

  1. The intrinsic value is its ability to immutably store and transmit value online with no intermediary. its the only available tool that allows that and its the only tool that has ever cracked that problem over 30 years of the computer science fraternity trying to do it. That's an attribute of the next wave of internet evolution that is still in a nascent stage so nobody gets it yet. it will become more and more valuable as an asset as the internet gradually moves to incorporate that missing link in the cyber world. The tool is not fully complete and secured until all of the coins are mined, its only at that point will it start being used as a currency. Until then it will remain as a store of value until a fair price for the service that it offers if found.

  2. I don't decide. It's converted into cash and used that way. I'm not using it to gain wealth, but just to have an income without having to take time to work. I mine the coin and use it as I need it. One day, Bitcoin and other cryto currencies will be a national and international monetary standard, and that day will virtually abolish banking, and eliminate a lot of expense for millions of people, and will get the governments off our backs. I look forward to it.

  3. Cryptocurrency represents a clear and present danger to the world and nation's monetary systems. I can't believe that governments and international organizations have allowed this nonsense to go this far and this long. There was a time in the USA when anyone was allowed to issue paper currency - and the colonies/states were full of notes of questionable or no value at all. This nonsense was banned long ago and a stop needs to be put to this nonsense now, if serious economic consequences are to be avoided. The whole thing is preposterous, and dangerous to boot.

  4. Bitcoin has value as long as people perceive it to have value. USD only has value because it is perceived as stable. It is not backed by any real asset like Gold (used to be during the days of the Gold Standard). But try paying your electricity bill with Gold or SIlver. You can't. You can pay it in dollars and in Bitcoin if the retailer accepts Bitcoin, or with a Bitcoin card where the issuer charges you Bitcoin but pays the merchant in local currency. When I was in Zimbabwe 10 years ago 1 USD = 10 Zim Dollar. A few years later it was 10 Billion Zim $ to 1 USD. People lost so much faith in their currency and the government tried to print their way out of trouble that hyper inflation set in and ZIM dollar is now gone. They use South African Rand, USD and Cryptocurrency. Many people don't have bank accounts but they have mobile phones. Dad works in Sth Africa, buys BTC and sends to the family in Zimbabwe instantly and with minimal fees (a dollar or so). Family take phone to market and exchange for USD or Rand at a money changer. I send money from Australia to Cambodia often and was being slugged USD 50 a time by one of the local banks per transfer. But I can now send Bitcoin almost for free and instantly phone to phone. No governments or banks involved. Bitcoin and crypto are here to stay but technology may make other crypto's more user friendly. For now, the average person only knows BTC so that is the one worth trading, with stops of course. Look up BTC price on xe.com - it's the people's currency and no one can print more of it to devalue it by over supply. IMO it may fall now and then with futures trading as some traders will try and short it but the demand for it will grow as it becomes more adopted. I run an Accounting firm and we accept payment in BTC now..

  5. Keep dreaming Lewis. When you decided to pay our bills with bitcoin how did you determine how much bitcoin to pay? Bitcoin has no tangible value because it still depends on fiat currency to gauge it's worth, unlike gold which has an intrinsic worth and has been used as it's own currency for thousands of years.

    Obviously you're an investor in bitcoin which explains your extremely bullish optimism. But if you think any government would let a monetary system thrive without their control and regulation, then a rude shock awaits you.

    1. Get an education...the Federal Reserve (which issues our fiat currency) is a group of private banks. The Fed is about as federal government as FedEx. Now what the private bankers that control our Treasury and Politicians will do is another story...the CEO of JP Morgan Chase said Bitcoin was a dangerous fad and a bubble a while back but it went even higher after that. Now his bank is in on plans to get their foot in the door. If you think our government controls the monetary system, you have no idea why the government is in trillions of debt (to the bankers that lend the Treasury the US Federal Reserve Note).

  6. I live in the state of Hawaii and unfortunately the state department of commerce and consumer affairs (DCCA) has blocked cryptoexchanges from doing business in Hawaii so perhaps by buying a future one can acquire a bitcoin with a call.

    1. Instead of buying crypto, we do arbitrage with crypto, making money whatever BTC (for example) will do, if fall of 20% we make money, if grow $1000 in a day, we make money. It's a sort of investing in crypto without owning them.

  7. Very ignorant article saying Bitcoin has no tangible value. How do you think it has lasted this long and done so well? I've used Bitcoins to pay my bills, put gas in my car and even get candy bars out of vending machines. Anyone who thinks Bitcoin has no tangible value is, at the very least, grossly uneducated and totally ignorant of the reality of Bitcoin. Before you make projections about various CryptoCurrencies, I suggest you learn more about them, and learn just how tangible and valuable they really are. Many intelligent investors realize, given the right circumstances, crypto currencies could actually REPLACE cash money and cause the value of current monetary symbols to all but disappear!

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