Looking back at when derivatives products were launched for other asset classes may offer some insight as to what will happen to Bitcoin markets. Analysts have been doing just that and the results are extremely bullish on paper but there could be some differences with crypto assets.
Bitcoin Futures Good or Bad?
To draw comparison, trader and analyst Luke Martin has taken a look at performance charts for gold and oil following the introduction of derivatives products.
“Charts showing the growth of commodities markets after low-friction derivatives products (like ETFs) were introduced. If the $BTC market is similar at all, it would have a massive impact on market expansion.”
Charts showing the growth of commodities markets after low-friction derivatives products (like ETFs) were introduced.
If the $BTC market is similar at all, it would have a massive impact on market expansion.
— Luke Martin (@VentureCoinist) September 9, 2019
In both instances the futures volumes grew much faster than those of the physical asset. This indicates that these products were designed for institutional traders that want some of the market action without getting their fingers dirty with the actual asset.
If the similar were to happen to Bitcoin markets, it may only be beneficial to BTC if the futures were physically settled, i.e. paid out in BTC and not USD. In 2017 both CME and CBOE launched similar products which allowed investors to short the asset for the first time which many have attributed to the massive bear market that followed.
The difference this time around is that Bakkt will be offering physically delivered Bitcoin Futures contracts; due to launch on September 23rd. Yesterday, the company announced that its digital storage facility was open for deposits.
“The Bakkt Warehouse allows for the safe, secure storage of bitcoin, representing a milestone as we prepare for the launch of the Bakkt Bitcoin Daily and Monthly Futures contracts on ICE Futures U.S.”
The Bakkt Warehouse allows for the safe, secure storage of bitcoin, representing a milestone as we prepare for the launch of the Bakkt Bitcoin Daily and Monthly Futures contracts on ICE Futures U.S. (@ICE_Markets)https://t.co/LT1335ik1P
— Bakkt (@Bakkt) September 9, 2019
Just a few days ago a huge BTC transfer was observed which is possibly related to this. In the blog post that Russell Newton penned comparing the commodities markets, he added that large institutional buyers are unlikely to want to take physical settlement in digital assets, adding;
“It is much more likely that these institutional investors will take synthetic exposure that provides them with the price volatility of digital assets without all of the underlying execution risk and operational risk.”
He continued to state that there has also been a steady, but often volatile, flow of finances into this asset class which is likely to continue regardless of any institutional gambling products that hit the markets. The short term impact on BTC markets remains to be seen as the asset continues to consolidate but in the long term it has definitely cemented its status as a new and viable asset class.
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