Bitcoin derivatives are coming in the next two months
The CME Group announced that it intends to launch Bitcoin futures before year end, pending regulatory review.
«Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract,» said Terry Duffy, CME Group Chairman and Chief Executive Officer in a press release. «As the world’s largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities.»
What does it mean for Bitcoin prices?
Bitcoin prices hit a record $6350 on the news but I think that’s the wrong reaction.
The key detail is that the contract is cash settled. At no point does the seller of the futures contract need to deliver the Bitcoin.
That removes the risk of a short squeeze on the necessity of delivering BTC in a limited market. On net, that’s neutral but it’s also a negative because speculators can use futures to bet on the upside without having to own, manage and store Bitcoin (or trust someone else to do it).
Contrast that with something like Coinbase, where you don’t personally own it but they hold it for you. That cuts into Bitcoin supply, while this doesn’t. It’s also preferable as a speculator because the CME is very experienced when it comes to settlement — there’s virtually zero risk you won’t get your money at the end, unlike the sordid history of some exchanges.
The opposite argument is that his will make Bitcoin more mainstream and accepted as a financial tool, but I don’t find that compelling.
Bottom line: This is going to encourage some investors/speculators into a derivative that isn’t going to affect the price. It’s basically adding unlimited supply of Bitcoin. So I would expect it (all else equal) to be Bitcoin-price negative.