The announcement made by the world’s largest derivatives trading platform CME Group to come up with Bitcoin Future’s trading by mid-week of December has skyrocketed the price of Bitcoin to record figures. Certain Bitcoin enthusiasts have been waiting eagerly for the price to rise up further once the trading actually commences from this year end. CME Group wishes to integrate Bitcoin in its core operations and bring it under the shadow of legalization.
Also Read: Bitcoin Futures Trading To Start By 2nd Week of December – Says CME Group CEO
Once a regulated futures market becomes a reality, it will become much easier for deep-pocketed traders to speculate over the price of Bitcoin causing it to become all the more volatile. David Johnson, the CEO of Latium and an experienced foreign exchange (FX) trader believes that retail adoption will actually bring about the ultimate boost in Bitcoin trading market.
In case you thought that good news ends just here then you are wrong as CME shall also try to bring about SEC’s approval on Bitcoin ETF’s in coming days. While rejecting the proposal of Winklevoss twins, the regulator had clearly stated that, ”when the spot market is unregulated–there must be significant, regulated derivatives markets related to the underlying asset with which the exchange can enter into a surveillance-sharing agreement.” Exchange traded funds shall help both retail and institutional investors in gaining exposure over Bitcoins. Bitcoin ETF will allow investors to add more Bitcoins into their traditional retirement portfolio by following a simple and low-fee mechanism.
Airline industry have to engage in bulk purchase of oil futures for which they have to lock in a certain price of jet fuel for charging appropriate price to consumers who book the tickets way in advance. It would be simply impossible for the airline industry to continue its operations if it became subject to the whims of oil market. By the hedging process, airline industry can lock in oil prices without having to purchase it all in advance and incurring massive storage cost.
Usually business houses who are accepting Bitcoin lately are relying on third-party payment processors for the intermediate conversion of the digital tokens into cash and subsequent deposit of the fund into the company’s bank account. However these companies are significantly small in size and do not have a long track record to boast of. This makes it increasingly difficult for such companies to gain collaboration from big retailers such as Amazon or Walmart.
The futures exchange of CME Group wishes to bridge this gap. Johnson had pointed out that the level of risk involved in Bitcoin dealings have kept major companies with stringent risk management strategies at bay from entering the crypto radar.
Also Read: Top Global Companies accepting Bitcoin
Storing of Bitcoin does have a large number of associated risks. While dealing with small payment processor there is high counterparty risk. The risk of inadequate liquidity while trying to exchange Bitcoin for cash and regulatory risks of non-compliance had also been plaguing business houses for long. Thus such risks need to be mitigated before big corporations like Amazon add Bitcoin to its payment gateway. With the futures market in operation, retailers can accept Bitcoin and convert it readily into liquid cash through a trusted exchange. It will take at least six to eight months for this new mechanism to reach the core of business operations with large retailers becoming aware of it and liquidity level building up. Ordinary consumers will feel the bliss of cryptocurrencies as more retail stores start accepting the same thus hiking up Bitcoin’s value in days to come. Unless the market for spending Bitcoin becomes strong and operational, it will remain as just another speculative weapon without any actual benefits.
Market participants in CME’s platform shall exchange “paper” Bitcoins in place of the actual ones. The effect of such paper dealings is yet to be seen however investors need to take note that commodity experts such as Ted Butler have openly rallied against its negativities of distorting the price of the actual physical stuff.
Also Read: CME Reveals An Insight Into The Functioning Of Its Upcoming Bitcoin Futures
Institutional investors cannot engage in Bitcoin dealings but will surely be delighted with the lesser restrictions on completing futures contracts. Thus they can speculate on the price of Bitcoin without actually having to own the asset. Institutional investors own billions of dollars in their kitty but have always shied away from the Bitcoin periphery given the unregulated Bitcoin exchanges which cannot be trusted completely.
Johnson feels that rather than fighting the regulation, Bitcoin owners need to embrace it with open arms. He has also suggested Bitcoin investors and businesses to come up with their very own rulebook which they shall adhere to while processing crypto transactions. Johnson feels that the latter would be a much better option than regulators trying to impose certain proceeding which can actually harm the health of crypto market. It is essential for Bitcoin to integrate into the existing legal infrastructure to stand the test of time. Increased understanding of regulators worldwide and massive acceptance among Wall Street honchos will definitely help in penning down Bitcoin’s success story. Given all its media glory, there is a high chance that Tim Draper’s prediction might actually come true. He stunned global audience when he pointed out few days back that, “in five years, if you try to use fiat currency, they will laugh at you. Bitcoin and other cryptocurrencies will be so relevant … there will be no reason to have the fiat currencies.”
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