Bitcoin Reaches New High After Futures Announcement
Charles Bovaird , CONTRIBUTOR
Opinions expressed by Forbes Contributors are their own.
Bitcoin prices reached a fresh, all-time high earlier today, extending their gains after exchange operator CME Group announced plans to launch Bitcoin futures later in the year.
The digitial currency’s price rose to as much as $6,629 today, according to the CoinDesk Bitcoin Price Index (BPI).
At this level, Bitcoin prices had climbed roughly 580% year-to-date.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
The CME announcement drew widespread media attention, and several market observers weighed in on the potential implications of such a move.
Many spoke to the new opportunity for hedging created by these futures, while others emphasized that these financial instruments could potentially draw the interest of institutional investors.
Futher, certain market observers even warned that taking Bitcoin and wrapping it in a financial product reminded them of how financial institutions packaged mortgages into debt-based securities leading up to the Financial Crisis.
Several analysts spoke to the new hedging opportunities that will be created when Bitcoin futures come into existence.
Institutional investors, companies looking to accept bitcoin as payment and even retail investors could potentially leverage Bitcoin futures in order to manage risk.
David Johnson, CEO of Latium, a tasking platform that pays its users in cryptocurrency, spoke to how these financial instruments could make it easier for companies to accept Bitcoin as payment.
“The CME announcement opens the door to using Bitcoin as a true tender. Bitcoin futures provide the required infrastructure for any business to participate in the Bitcoin phenomenon while mitigating market risk. The ability to hedge market risk is a requirement for any business looking to accept payment in a non-native currency.”
Brad Chun, chief investment officer of hedge fund Shuttle Fund Advisor, offered similar input.
“A robust derivatives market is the key to mass business adoption of cryptocurrencies in general,” he said. “In order for someone to use it for trade finance or other commercial purposes, they will need to be able to hedge the price volatility to the indexed based currency of trade whether it be USD or something else.”
Easier Investor Access
Creating Bitcoin futures will make it easier for people to invest, emphasized Jacob Eliosoff, an algorithmic programmer and fund manager.
He emphasized that this development has its good points and its bad points, as it will provide a “safer venue” than Bitcoin exchanges, but it will make it easier for “vulnerable” investors to get involved at a time when many are concerned that digital currency values have grown inflated.
Tim Enneking, managing director of Crypto Asset Management, emphasized that futures, options and other financial instruments increase the amount of Bitcoin available for trading.
“The actual number of BTC doesn’t increase, but the number of trades that could be based on a given number of BTC increases,” he said.
Enneking emphasized “such an expansion (and, potentially, a major expansion) of the assets available for trading could attract institutional attention where simply buying and selling a crypto currency would not.”
The introduction of Bitcoin futures has combined with the U.S. Commodity Futures Trading Commission’s decision to regulate the currency to help create more mature regulation of the space.
“With the CFTC staking their claim to the regulation of bitcoin last year as a commodity, it opened up the ability for exchanges like Terraexchange, LedgerX, or CME to do something as a registered exchange,” said Chun.
This is a positive development because the National Futures Association “sets guidelines for pool operators and managers on their risk levels for themselves and their clients,” he stated.
Bitcoin futures could make it easier for regulators to approve an exchange-traded fund (ETF) based on the digital currency, a development that several analysts commented on.
“I think futures are a stepping stone to the etf and investors are aware of this,” said Iqbal Gandham, UK managing director of social trading platform eToro.
Eliosoff concurred, stating that the CME announcement “does seem to make ETF approval all the more likely.”
Several analysts lauded CME’s announcement, praising it as great progress for broader digital currency industry.
CME’s announcement represents Bitcoin “crossing the divide from the wild west of finance to the mainstream,” said Charles Hayter, co-founder and CEO of levered digital currency platform CryptoCompare.
Chun summed the situation up nicely, saying that “It was badly needed and is good for the whole space.”