Are we experiencing a cryptocurrency crash and burn? Will Bitcoin Futures be the future of Bitcoin?Have we seen the end of Bitcoin or is everything going to bounce back? Or did we just get the confirmation that we needed to see the trend reversal?
Bitcoin has been having a rough time. It has been a pretty steady dump off. And appears to have dumped off at it’s lowest point at 9,400. Since then it has been continuously climbing. This is exactly what you want to see when you are looking for a recovery.
Watching Crytpo Charts
Watching charts really is not a good idea. At one hour or less and the market is too volatile. It is hard to really get a good idea of things. Stepping back a bit, many analysts say that Bitcoin is set up to skyrocket again. Especially given that all the major coins dropped and went into neutral territory.
Bitcoin Today and Cryptocurrency Prices
The major Bitcoin alternatives – cryptocoin plummeted for a good length of time and then are slowly rising again.
The market did need this correction simply because there has been so much growth.
The market cap was nearly $600 billion but it dipped to $450 billion, which was the previous level from about a month ago. While many people panicked, the drop did not even set back that far.
Many people suffer from loss aversion. Loss aversion is where you place more importance on a loss rather than on a gain. If you start out with $0, but gain $15,000. Then you lose $10,000 you may suddenly feel horrible.
Loss tends to be a more intense emotion than happiness. And if you’d like to experience less of that intense emotion, check out this review of CryptoReview I made for you.
Bitcoin Futures Trading
Bitcoin futures is a big topic. If you look on the Cboe.com website, they have enabled XBT Bitcoin.
Futures trading is where you bet on the future price of Bitcoin. The first contract had expired middle of January. Remember these guys are institutional investors they have a lot of money. They are playing with billions here.
The people who shorted it may have wanted to drive the price lower right before their contract expires just because it helps them make money. If they expect Bitcoin to go up, it is safe to expect a very nice trend upwards.
Bitcoin and Wallstreet
Wall Street is starting to come into Bitcoin, which is an incredibly bullish factor in many people’s opinion.
Wall Street still isn’t in all the way though. They are trading futures.
Goldman Sachs and Morgan Stanley are the two main Wall Street institutions offering clearance for Bitcoin futures.
Obviously they want to get their hands in. They were very late because they are resistant to change. Fortunately, many people were able to get in before Wall Street.
Futures are very liquid. There is no time decay. They are designed more for the bigger investors because they are highly leveraged products. You do need to have a margin account in order to trade these products.
A lot of the rise recently in Bitcoin can be attributed to hype behind Bitcoin futures and an increased amount of liquidity coming into the market from institutional investors.
The Effect of Bitcoin Future
The majority of people that will be investing in Bitcoin futures are going to be institutional accredited investors. It’s going to be brokers on the behalf of wealthy clients. It won’t be the retail investor that is investing in futures mostly because:
- They don’t have enough money for the initial margin requirement
Investing in futures is usually more complex than most people are able to understand and as a result of that most people stay away from it
The majority of people that are going to be investing in these futures are going to be wealthy individuals as well as institutional investors.
Bitcoin Futures Hesitations
The result of this is that those types of investors tend to be a little bit more cautious and wait to have the first cycle go by where they understand how the volatility works.
They understand whether or not the initial margin requirements were set high enough to actually make sense for Bitcoin futures.
There’s already been a number of criticisms as to whether or not margin requirements are high enough. A number of different brokers are actually going to implement a higher initial margin requirement than what is required by the Chicago Board Options in exchange as well as CME Group.
Bitcoin Margin Requirements
The initial margin requirement says that you have to make a deposit in good faith that will be debited and credited.
Someone will need to deposit a certain percentage of the worth of the contract. For example:
- One contract is going to be one Bitcoin which makes it so that it available to retail investors.
Depending on the price fluctuations of the contract money will either be lost from that deposit or there will be a gain from that deposit, depending on whether or not the contract went against you or in your favor.
The initial margin requirements are very important because it ensures that someone will be able to pay out to the other party.
Every single day the cash balances are going to change based off of the change in the prices of the futures.
The initial margin requirements are going to be changing very rapidly depending on Bitcoin’ volatility
The margin requirements will also change rapidly from broker to broker. With some brokers, someone will not be able to sell their Bitcoin in the future for cash.
Someone shouldn’t expect a huge pump of liquidity into the market.
Investors may also be cautious of how many times price limits get hit. There will be limits that are set in place so that if Bitcoin moves over a certain amount in a day, it will freeze at different levels and trading will be halted altogether if Bitcoin’s price moves 20% or more in either direction.
It may not positively affect price as much as some people anticipate. But it may help settle a market or create a market based off a Bitcoin that is much more stable in the long term. This may not affect short term but long term it may establish a market with higher liquidity and more efficient pricing.
Bitcoin ETF Approval
Bitcoin ETF may be approved in the future. There are many Bitcoin ETFs that are trying to get approved. Winklevoss Bitcoin ETF has been going through the regulatory approval process for about 4 years.
The Securities Exchange Commission (SEC) can’t regulate Bitcoin, but it can regulate Bitcoin futures. In the case of Winklevoss, it has not denied approval, instead continues to extend the time to make a decision.
The main problems they are considering are:
- Bitcoin is not physical
- It is not regulated
- Are Bitcoin markets stable?
- So can it be a proper asset for ETF?
- Does Bitcoin have a reference price?
- How can Bitcoin be stored securely?
If /When Bitcoin ETF gets approved a lot of capital will come into Bitcoin.
At that, there will be a shift in the way the public views Bitcoin. Many people still think that Bitcoin is seedy and used to buy illegal products.
If the SEC gives approval, people will shift their thinking from scam to a real financial option.
Institutionalized or Centralized Coins
Regulated futures have been the talk of the Bitcoin community. Some believed that the Bitcoin market could then be manipulated.
The more than investors from the institutions become involved in the cryptocurrency markets, the more the price is affected. Whether that has positive effects short term or long term will remain to be seen.
In fact, Coinbase currently offers services for storage to institutional traders.
Given all the potential for the future of Bitcoin, it is hard to write it off. Bitcoin Futures may be how Bitcoin evolves and stabilizes.