Fueling the Fire of Bitcoin: Knowledge is Power
$BTCUSD, $CME, $CBOE, $GS
1st Main Street, then LaSalle Street, and now Wall Street bring new interest to the Bitcoin market
The futures markets have shown that investors want to gain exposure to Bitcoin in a regulated manner without having to store the underlying asset, aka price is the preconceived asset here, to me that is No asset.
For the civilian investor, there’s a lot of risk is involved with holding Bitcoin and this is represented by the significant premiums and margins to play the Bitcoin.
Currently Bitcoin is trading at: 14,778.7246, +287.194, or +1.98%, at close: 6:47a GMT, the market is closed.
But, aside from the pushing up the price and generating media coverage, the futures market will have profound effects on Bitcoin.
Increasing demand will likely lead to more futures markets and creating greater volumes over time. There are currently over 15 applications pending for new ETFs, the volume is coming, stil there is a long way to go.
The Y 2017 Bull Run combined with scaling tension has led to a sustained increase in Bitcoin volatility over Y 2017, breaking the 5-year down trend.
The regulated futures markets and potential ETFs may be the Key; deepening liquidity, closing the spreads and reducing the volatility, all of which will contribute to greater market efficiency, price discovery and ultimately ensure Bitcoin will be a better store of value and medium of exchange.
But, regardless of the tempting volatility, no sophisticated traders will jump into Bitcoin without arming themselves with Knowledge, as Knowledge is Power
It takes a time and breadth of disciplines to understand Bitcoin and its many intricacies, and a bit of faith.
The cryptoeducation phase is underway, in fact the CFTC (Commodities Futures Trading Commission) launched an online information portal days prior to the Bcoin futures launch. Its aim is to educate the public at large on digital commodities.
This period of research and analysis will have many positive externalities ranging from more effective regulation to greater capital allocation efficiency within the crypto economy.
So far, investing within the Bitcoin ecosystem has largely been haphazard. Almost every Bitcoin company has underperformed against Bitcoin itself.
A greater understanding of Bitcoin will foster an ecosystem that allocates capital with greater efficacy, creating the value feedback loop more prevalent in cryptocurrencies such as ethereum.
Healthy futures markets need a mixt of speculators and hedgers that hold the underlying assets.
Typically for markets run by CME (NASDAQ:CME), this may be farmers looking to lock in the price of their harvests by short selling contracts of Wheat, Corn, and Soybean.
As it is now, just 2 weeks in, Bitcoin futures market is mostly comprised of speculators, and there is a lack of natural sellers as most traders would have to naked short meaning short without holding Bitcoin.
At Interactive Brokers, precautions are so great you need 5X the collateral to make a trade. For a contract of $100,000, a trader would need $500,000 as margin.
The ability to hedge the price of Bitcoin alters the risk profile of other parts of the industry, particularly mining.
Expect more risk-averse companies to venture into mining industry.
After announcing they would start mining the Top 10 cryptocurrencies Digital Power Corp. saw a stock appreciation of 750%. Digital Power are not alone and numerous tech companies are jumping aboard the rush to mining .
With the ability to short sell Bitcoin to “lock in” mining profits, these companies can do so with drastically reduced risk.
For companies like Digital Power, instruments that provide shorting on indices will be invaluable. If this trend continues, Western mining corporations could start to chip away at the currently centralized mining hash power, 80% of it happens in China.
It will take time for volumes to build and spreads to close as only a limited number of sophisticated investors are currently capable of carrying out the risky cash and carry arbitrage.
Uncertainties still surround forking, scaling and regulation will make Bitcoin’s journey to an efficient market chock full of pits.
There is lots of work ahead to create an efficient market.
And it is happening, cryptocurrencies are attracting established players.
Goldman Sachs Group Inc. (NYSE:GS)is setting up a trading desk to make markets in digital currencies such as bitcoin, according to people with knowledge of the strategy. The bank aims to get the business running by the end of June.
Have a Happy Christmas Holiday Weekend.
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