What do the introduction of Futures Products really mean for the price of Bitcoin?
News of the CME and the CBOE both launching Futures and Options Products has dominated the headlines over the past few weeks, and for good reason.
This marks a serious milestone in the history of Bitcoin.
What started (possibly) in someone's basement is now looking to become a bonafide asset class that is backed by Wall Street.
That is a ride not many asset classes ever make.
Now, the bitcoin market waits with baited breath for Dec. 10th and the 18th. Dates when both the CBOE and CME will launch their futures products respectively.
The big question on everyone's mind, what will this mean for the price?
There is one side of the camp that says this will open the door to many institutional investors that wanted some exposure to bitcoin but simply couldn't because of the lack of regulations in the markets bitcoin currently trades in.
Now that there is a regulated market, money will flood in.
This flood of money will push bitcoin to many multiples of even where it is trading today ($11,800).
Then, on there other side, there is the camp that says bitcoin was never really able to be shorted before, at least not in any meaningful way, and now there is a whole group of predators entering the fold that will be able to bet against prices and benefit from them dropping if they are right.
Not to mention they will likely use any tools available to them in order to make prices go down and thereby realize a profit.
Which side will ultimately win?
We won't know for sure for a few more weeks, at the earliest.
I have my own suspicions but I won't say them here as I want to hear some thoughts from the community.
Let me know what you think the introduction of futures markets mean for the price of bitcoin in the comments section below.
Will it make prices continue to make new highs as new money continues to enter the space, or will it cause bitcoin to be shorted into the ground by the players who would love to see it killed?
Let me know your thoughts.
Stay informed my friends.
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@jrcornel (or anyone else) I have a question about all of this - would love it if you or someone else here can answer it for me:
My understanding is that these futures will all be settled in USD, not in BTC - meaning that no actual supply or demand will be created for BTC itself.
So in that case, how will it affect the price of Bitcoin at all? Is it just simply market manipulation by wall street in order to make a profit on their futures position?
Maybe there's something to this that I'm not understanding - looking forward to hearing from the community here.
The thought that I have is that this may allow certain Wall Street groups to open positions in the actual coins, knowing that they can hedge their risk using the futures markets, making the perceived risk in owning bitcoin less than before. I am guessing that there are some investment groups that haven't gone into bitcoin because of the perceived risk, if this eliminates even a portion of that risk they may enter the crypto space.
I think the whole thing is pretty scary actually. I see futures market as the introduction of reason and technical analysis that is going to wipe a ton of the last couple weeks gains right of the table. There is as much incentive in that market to crash the price as there is to see it rise. On the positive note is that it will eventually bring stability and start crushing out the volatility.
https://www.ft.com/content/5ee5fda2-daa7-11e7-a039-c64b1c09b482
https://www.coindesk.com/bitcoin-futures-make-way-new-kind-whale/
https://steemit.com/steemit/@pawsdog/steemit-quest-for-one-million-time-required-to-build-a-usd1-000-000-00-steemit-account
This is a really good point - I didn't consider that it would allow wall street to hedge their BTC bets which they couldn't do before - thank you!
The articles always say that wall street doesn't want to worry about holding the underlying asset but that may not really be true.
Exactly. Anyone that wants to play arbitrage between the markets will be able to do so as well, and in most cases they will have to own the underlying asset, even if just for a short amount of time.
Yeah, but appart from the psychological effect, are there really buys/sells of BTC happening ? That is also my question.
There potentially could be...could minimize the risk of buying bitcoin for some of these funds. Allowing them entry points that they are comfortable with. If you are asking if the buys/sells of actual btc will take place in the futures markets, that is a no, the futures markets will be cash settled.
I think the futures contacts will be in USD but if it is a promise to pay x amount in the future, wouldn’t you then have to buy the underlying asset to deliver at that price, thereby actually creating demand for bitcoin? I should read more and report back if I find it is something different.
You're right about how ETFs work, but that's not how futures or options contracts work. Since the futures will be settled in cash then at no point will actual BTC be involved at all.
A good analogy is if we make a bet. You bet me $100 that Bitcoin will be $20,000+ by the end of 2018. Then if it is you get $100 and if it isn't I get $100. At no point was any actual BTC bought or sold as part of our bet.
This is how I understand these futures contracts will work, so unless I went and somehow otherwise affected the BTC market to keep the price under $20k so i could win the bet the price of BTC shouldn't be affected by our bet at all.
Looks like you edited this comment which makes my reply below make no sense! Anyway I don't believe the underlying asset ever needs to be bought - you can just pay the difference in price in USD. That's what it means by the contracts will be settled in cash.
That's right. Margin calls are settled based on the closing physicals price (CBOE is basis Gemini and CME is based on index. Big moves on the physicals price will affect the margin levels required to maintain positions.
I wonder too... How is this stuff really linked to BTC market, I mean with the blockchain itself ..?
I am wondering that myself actually. I haven't been able to find whether they are all cash settled or not. Like you mentioned, if they are, and only based on market prices of bitcoin, the ability to manipulate wouldn't be as great.
In this Business Insider article it says:
So unless actual Bitcoin trading starts to follow the futures market (maybe because people think that's where the "smart money" is) I don't see how this will have any bearing on the actual price of BTC.
I agree if the hodlers continue to hodl. Issue many would raise are the new market entrants that may not be accustomed to a 100 vol product and bail out on the first 2000 point move in the physical, compounded by Coinbase's "technical issues" that invariably arise during such moves.
I have a doubt what if US government stops all crypto exchanges? Then our coin will still be safe?
If anything the introduction of a futures product further legitimizes the asset class with the regulators, both CFTC and SEC .. because I agree that drastic action against the exchanges will render chaos on the futures markets.
That's why it is not advised to leave all your money on such exchanges : they can shutdown for whatever reason. And you wouldn't be able to do much if this happens.
Both futures products will be cash settled, basis the physical spot exchanges (Gemini for CBOE, and an index for CME). Somewhat ironic given that a BTC is probably the easiest of any product to deliver. Would you rather receive a freight train full of live hogs or a block of bitcoins delivered to your address ? !!
I think I've said it here before, but BTC shouldn't be treated as a security - which is how the futures markets will treat it. Therefore, I do not think this spells good times for BTC ahead. Likely a dump coming in early 2018 as traders bet against it.
will be an interesting month
I am expecting to see an initial rise because of the euphoria, but hedge funds are smart and they know they have enough money to make the markets do what they want, that is why I am thinking there will be a big drop after the initial run. Why would the hedge funds want to buy something at an ATH when they could drop the price and then pump it back up later... Just my thoughts, either way I am going to be prepared. Bears and Bulls can both make profits here. Only the Pigs get slaughtered.
The problem with the futures and the big players entering the market is that Wall Street has a great deal "free money" to play with from all the QE from the FED.
These thoughts are very similar to my own...
Hard to argue that. The shorts will have the balance sheet to stomach the losses on the way up.
This is true, I just don't see why they would really bother taking them knowing they also have the pockets to push markets in their favor.
The futures are cash settled, low interest rates, no cost of carry, would suggest futures and physicals trade in line. Futures market gets pounded and physical price comes down too. eg. algo is trading both markets, it sees futures are getting hit, it bails on the physical and seeks opportunity to buy the future or spot at the lower levels. Basis traders will be eager to see how spot trades relative to front futures month, and how near and longer dated futures months behave relative to one another. One theory is the spreads will be sentiment driven.
They should trade in line for the most part. It just wouldn’t surprise me to see some push for lower prices. Like I said, I don’t see smart money buying into something at ATH when they have the money to change the price. Hell there may even be existing whales that will use futures to hedge risk driving that market down.
Solid writeup, I'm expecting bitcoin to drop significantly once shorting is possible. However, that could be a small window of time as institutions get onboard
That bear is intense... I think BTC will continue to rise to $100,000 and then the shorts will attack with everything they have and lose!
I'm not so sure it's a good development in the growth of Bitcoin, inevitable I guess but not necessarily good. Future markets tend to be easily manipulated by big money - good when it's pushing up, not so good with profit taking on the down side. Just another factor to consider when buying or selling the coin and another way the rich get richer.
You might get a lot of gold traders to agree with you!
I think there are many interest groups out there that will try to make Btc worthless because it in their best interest to see it fail. Banks, governments etc. Right now we are on a high wave of speculation. If you ask me, I really can't tell for sure. My logic is telling me it will go down because of 10x this year, high transaction fees, criminal forks creating new altcoins worth billions at launch..
What do you think @jrcornel? :)
I think that I agree with you. I think because of how much bitcoin is up currently, it will be an easier push down than a push up. That being said, I think initially we see a price spike, but then I think we see a fairly substantial dip... what happens from there remains to be seen.
@jrcornel dear friend,Can i have get your permission to resteem this??
Of course, thank you!
Thank you so much.
You never need to ask permission to resteem. The sooner you do it the better!
There is a very long commentary on some of the ins and outs of cash settlement of bitcoin futures here. Make sure to see the second commentary, posted at 3:00PM today.
One thing that is worth remembering, in my opinion, is that the Big Boys who can now affect the price include some with virtually unlimited access to fiat money. This subset of Big Boys certainly have enough to buy a great volume of the coins even at today's price. So the potential for bitcoin to be "managed" as gold and silver have experienced seems real, to me anyway.
Very good point. This is how precious metals markets have been tamed for decades now. Why would bitcoin be any different?
Thanks @techwizardry! From what I have read about the multi-decade "management" of gold (and to a lesser extent silver) prices, it seems not a far-fetched hypothesis that rushing CME, CBOE and Nasdaq into futures trading with cash settlement is a "management move".
BTW – What is your thought on the following idea. Aside from the legislative and regulatory actions linked to control of tax evasion and money laundering, we should not expect a China-style ban; because the latter would bring on a confrontation with States like Texas. So, instead what will be used are these “management moves”.