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.
By Matt Thalman
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(NYSEARCA:UUP) 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(NYSEARCA:GLD), silver(NYSEARCA:SLV), 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.