Do we need Bitcoin Futures?
2018 was stomach wrenching for crypto investors. Prices of digital assets fell and with governments and their agencies coming down hard on crypto and related products as ICOs, the consequent diffusion cast a chilling effect and prices inevitably fell. However, there is a reprieve and while we recognize that the industry is exactly a decade old, recent exposure to new demographics might be what the industry needs.
Perhaps we can even draw lessons from the Dojima Rice Exchange, the first Futures contract exchange birthed in Osaka Japan back in the 1700s with the express purpose of cushioning rice farmers from damaging fluctuations of rice prices during a period of bumper or poor harvests. Because rice was a crucial source of income for the Japanese and even a medium of exchange back in the day, crypto assets especially Bitcoin is indispensable for a new breed of libertarians and maximalists—not forgetting speculators.
Futures Contracts: Bakkt, CME, CBoE
Investopedia defines a Futures Contract as:
“A legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time in the future.”
They further expound saying:
“Futures contracts are standardized for quality and quantity to facilitate trading on a futures exchange.”
From this, we notice that any futures contract is legal and approved by a government agency. Additionally, it is standardized for quality purposes meaning trading is not as haphazard as it is trading coins. It is systematic, and exchanges are held accountable.
No doubt, the community was elated when the US CFTC approved the launch of the first Bitcoin Futures back in late 2017. Partly because of the meteoritic rise in asset prices, participants thought it was fit for the product to roll out allowing bet on futures prices.
The inauguration coincided with a market slump, but still, the ICE with backing from Microsoft and Starbucks are serious about launching their own Bitcoin Futures platform, Bakkt. The question in everyone’s mind is not about the product but whether the time is ripe for it to begin. Is it too early? Or, Are participants just naïve and reeling from last year’s morale damaging doldrums.
Maybe it’s still Early for Bitcoin Futures Contract Roll-Out
The truth is, you can’t compare the number of futures contracts traded at the world’s most active mercantile exchange, the NYSE with those tied to bitcoin at the CME or CBoE. The contrast is stark, and it’s not about to change anytime.
For one—and instead of burying our heads in the sand, it’s relieving to acknowledge that despite the flowers, BTC is not yet that strategic asset. It’s not a primary mover in the global scene either as a medium of exchange or a store of value though it can act as both. Institutions are skeptical and, on edge, while most brick and mortar companies are yet to accept it as a form of payment—and I’m saying they won’t.
Besides, strictures are not yet in place, and cutting use of Bitcoin doesn’t mean the world will come to a standstill—it’s not a feeder in any process. Plus, you can’t extract BTC from the digital ether and use it to say manufacture a product neither are institutions keen on hedging using a product commandeered by speculators. The truth is, it is far from being a strategic product and compounded by the availability of alternatives as fiat or Gold, for example, Bitcoin has a long way to prove itself.
Secondly, even if Bitcoin Futures are rolled out amid great fanfare, a lot must be done as far as infrastructure is concerned. Custodial solutions are needed and aside from that regulators must be involved. It doesn’t bode well with purists. Apart from this, the lack of leverage and high volatility will force exchanges to ask for better cushions.
In conclusion, rather than being edgy waiting for SEC or CFTC approvals, the community should be in the forefront drumming up for Bitcoin education. It will spur adoption, and ultimately, renewed interest will form the backbone of the next wave of higher highs past 2017 peaks.