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Implication of Bitcoin Futures Listing

Posted on Posted in Finance, Startups, Trading

Everyone is excited about Bitcoin futures being listed on US exchanges, and Bitcoin price keeps soaring.

Here is some analysis of this news.

  1. Bitcoin value is likely to go up (in the near term), volatility should go down, and majority of Bitcoin investment flow would be in the futures – This should give recognition to the world that Bitcoin is real and not a fad, and this credibility along with rising Bitcoin prices shall increase.
    1. Typically when the future of any asset is launched, based on interest in the underlying asset, the volume typically goes to 10-20 times more in the futures market, compared to the underlying (cash) market. It’s likely to be the case with Bitcoin too. 
      1. This means that Bitcoin futures maybe more than underlying Bitcoins (21million) and lead a crash faster
    2. Given the increased participation in Bitcoin, its value will rise again .. possibly reaching $20k in early 2018
    3. Volatility should come down as Futures market will be the major market and typically there are regulations around daily price moves, circuit limits that shall apply to Bitcoin Futures as well
  2. Bitcoin futures launch with catalyse structured products on Bitcoins and more liquidity across several more exchanges in 2018  – This is what bankers (financial services players) do.  Expect more exchanges launching Bitcoin futures and its variants (like options etc.), Bitcoin / Crypto ETFs will come from fund managers, more crypto exchanges will also offer crypto variant products, margin, leverage and so on. Ether and other coins futures can be expected soon as well.
  3. Bitcoin was meant to be used as a peer to peer decentralised currency and it may lose that point Lets take a step back. While there maybe reason to cheer the Bitcoin future launch as validation of its credibility, but there maybe some fundamental issue it brings.
    1. If Bitcoin is not being used as a global currency (as it keeps rising in value, nobody spends it),
    2. and is only used as an investment commodity,
    3. and its value is determined by futures value on exchanges,
    4. typically by institutional investors,
    5. and in a regulated way
    6. then maybe we are losing the whole point of why Bitcoin was invented? The whole idea was decentralisation away from regulated and centralised financial system. was it not?

As an analogy, in several countries, there is a parallel economy run by cash / black money / gold / or any other asset. But nobody lists black money future on an exchange? (don’t necessarily focus on the negative point / comparison of black money with bitcoin .. but its just proving a point. maybe bitcoin was meant to be helping in a decentralised community driven parallel currency only)

Short term excitement is evident (in bitcoin price), long term rationality of this step may need a deeper reflection.

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