On the 17th of December 2017, the Chicago Mercantile Exchange & Chicago Board of Trade (CME Group) will be launching their very own Bitcoin Futures contract as they seek to capitalize on the recent surge of the digital currency. CME’s trading of the Bitcoin will begin at 6PM EST, and judging by the effects that its rival, CBOE Global Markets’ contract had on the market last week, huge shifts in the prices of various cryptocurrencies, especially Bitcoin, are highly anticipated.
Increase in Volatility (Short-Term)
The introduction of leverage into the equation will definitely have significant changes on the volatility of Bitcoin prices in the short term. CME’s initial margin requirement of 35% would mean that investors will have the ability to control over twice the amount of Bitcoin that they could afford. Furthermore, since the majority of investors in the futures market are institutional investors, this would lead to a more volatile market as these “whales” will have the ability to dictate market prices in one way or another whenever they pump or dump.
Decrease in Volatility (Long-Term)
On the flipside, Bitcoin futures can also dampen volatility and help stabilize the price of Bitcoin in the long term. By bringing Bitcoin futures to both professional and mainstream investors and allowing them to trade in a regulated space, CBOE and CME will be able to increase market liquidity and help stabilize Bitcoin not just as an asset class, but also as a currency as well. This will help Bitcoin achieve its goal of becoming the de facto tender for the internet, thus living up to the vision of its enigmatic founder, Satoshi Nakamoto, whose intentions was for Bitcoin to be a peer-to-peer electronic cash system.
Increase efficiency of the market
CME’s futures contract will also result in lesser arbitrage opportunities between different trading platforms. This will in turn create a more efficient pricing market as the price of Bitcoin will have a smaller range of deviation. To put this in perspective, imagine if Person A purchases 1 BTC on Trading Platform X, the reduce in arbitrage will make sure that the 1 BTC that was purchased on Trading Platform X will not have a lower or higher value on another trading platform.
For more information about what “Bitcoin Futures” are and the various requirements for a Bitcoin Futures contract, click here. CME’s Bitcoin Futures contract will be launched this Sunday at 6PM (EST).