Will the Launch of Bitcoin Futures Lead to a Price Surge or a Major Correction?
Greg Dwyer, the head of business development at leading cryptocurrency exchange BitMEX, said in an interview that bitcoin futures could drive the price of the cryptocurrency to $50,000 in the mid-term. Ahead of the CBOE’s launch on December 10, the price of bitcoin has fluctuated considerably, between $15,300 and $13,000, resting near the open at $14,478 for December 10 at the time of writing.
“Now, looking at the current market cap of bitcoin as going to $300 billion, with more institutional money coming in we could see market caps go up to $500 billion, which could — or even $1 trillion — which could increase the price of bitcoin from now $15,000 up to $20,000, $25,000, or even $50,000,” said Dwyer.
Several critics of bitcoin have also claimed that the listing of bitcoin futures by the Chicago Board Options Exchange (CBOE) and CME, two of the world’s largest derivatives exchanges, could trigger a significant correction because futures contracts allow traders to short bitcoin with ease. Moreover, the two exchanges are set to introduce ‘circuit breakers’ for the futures contracts, which aim to halt trading if bitcoin markets display extreme volatility. For instance, the CBOE is planning to stop trading for two minutes if BTC-USD moves more than 10 percent and for five minutes if there is a 20 percent move.
Major Financial Institutions Will Clear Bitcoin Futures
Crypto Rand, a highly regarded cryptocurrency analyst, revealed that the price of uranium fell drastically over a three-year period after CME listed uranium futures on its trading platform. Some analysts have stated that it is difficult to short bitcoin on exchanges within the cryptocurrency market and that futures contracts will provide a better platform for traders short bitcoin.
On the contrary, many analysts and researchers in both the cryptocurrency sector and global finance industry have emphasized that the launch of futures exchanges by CBOE and CME on December 10 and 18 respectively will add legitimacy to bitcoin and allow it compete against multi-trillion dollar markets like gold.
According to Nikolaos Panigirtzoglou, a global markets strategist at JPMorgan, futures contracts will facilitate the investment of large-scale institutional investors and retail traders in bitcoin, increasing the appeal of the cryptocurrency to the traditional finance sector. He added that with sufficient liquidity and market depth, bitcoin as a new asset class would challenge other stores of value:
“In all, the prospective introduction of bitcoin futures has the potential to elevate cryptocurrencies to an emerging asset class. The value of this new asset class is a function of the breadth of its acceptance as a store of wealth and as a means of payment and simply judging by other stores of wealth, such as gold, cryptocurrencies have the potential to grow further from here.”
Jamie Dimon, the CEO at JPMorgan, the largest bank in the global market with a market valuation of $367 billion, also said in an interview with CNBC that he is open-minded to uses of cryptocurrencies such as bitcoin if properly regulated. The statement of Dimon came after various sources revealed that both Goldman Sachs and JPMorgan plan to clear bitcoin futures on behalf of their clients by late December.
Impact on the Price of Bitcoin
Over the past month, billionaire investor Mike Novogratz continuously emphasized that a herd of institutional investors is coming to the cryptocurrency market, committed to investing in bitcoin. Most recently, $95 billion hedge fund Man Group announced that it would invest in bitcoin upon the launch of CME’s bitcoin futures exchange, on December 18.
Coinbase CEO Brian Armstrong estimated the amount of capital and institutional money to be invested in bitcoin through futures contracts in the short-term at $10 billion. The inflow of billions of dollars in the upcoming weeks will create a domino effect across all exchanges, as large-scale investors in the finance sector and casual investors engage in bitcoin trading.
While the introduction of bitcoin futures is a positive fundamental for the cryptocurrency, it may take a long time for the benefits to filter through into the price and volatility. For instance, Ophir Gottlieb, CEO of Capital Market Laboratories told Reuters, “Hypothetically, volatility over the long run should drop after institutions get involved. But there may not be an immediate impact, say in the first month.” When futures were introduced for gold, it took a few years before a positive effect was noticed in the price of the yellow metal.
While some expect the price of bitcoin to decline given that it has become significantly easier to short bitcoin, the vast majority of investors predict that BTC-USD will surge as a result of the listing of bitcoin futures by CME and CBOE. Bitcoin futures on the CBOE being trading on December 10 (18:00 EST). The price of bitcoin currently stands near $14,400 on the Bitstamp exchange.
BTC-USD (Bitstamp, Daily): Resistance at $15,111.50, Support at $13,623, look for daily close above $15,111.50 or below $13,623 for indication of next move.