Investors Warming Up to Bitcoin Futures Despite Volatility
Bitcoin futures trading is a budding and increasingly attractive market for potential investors. Yet, despite the potential upside surrounding cryptocurrencies, like bitcoin, many investment firms have been shying away from offering futures trading for this newly introduced, and often misunderstood, online currency. Most large firms have been waiting, trying to understand the crypto market before jumping in to the fray.
Even surrounded by such uncertainty, two of the largest investment firms on Wall Street, Morgan Stanley and Goldman Sachs, couldn’t resist the call and have begun to clear bitcoin futures trades on several markets. Morgan Stanley has been clearing bitcoin futures trades on The Chicago Board Options Exchange (Cboe) Global Markets and CME Group since December. Morgan Stanley is entering the bitcoin futures market at an interesting time. On Wednesday (Jan. 17) the value of the crypto currency market halved its value from Jan. 7, falling below $420 billion.
Aside from the two big investment firms, several brokerage firms such as TD Ameritrade and E*Trade have also been clearing futures for clients.
In notable news, the first Bitcoin futures contract expired on Jan. 17 after a day of trading that showcased the volatility that surrounds bitcoin futures trading. The contract was ultimately settled at $11,055, which is considerable given the fact that during the trading period bitcoin prices dipped near the $9,000 mark. The contract was listed on Cboe. Cboe began listing Bitcoin Futures trading on Dec. 11 2017 and attracted so much traffic that they were forced to temporarily shut down their site. During this period BTC were listed at between $16,500 & $17,000.
One of the biggest issues with futures trading of bitcoin is virtually no one can be certain of how the futures trading price will compare to the spot price of bitcoin. For many people, the potential upside of this uncertainty is an attractive enough reason to invest. For example, Tom Lee, the Co-Founder and Fundstat Strategist has predicted by the end of 2018 the price of Bitcoin will reach $25,000 and by 2022 Bitcoin he predicts that Bitcoin will reach an incredible $125,000. This is when Futures trading could be incredibly advantageous for an investor, who potentially could lock in a future price that might be far below Lee’s projections.
But for many other investors Bitcoins volatility is a serious cause for concern. Even investment greats like Warren Buffet have chimed in to the madness by saying:
“In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending.” (Jan. 10)
But, one of the main reasons Buffet doesn’t believe in the futures of crypto currencies is because he doesn’t understand it. And just because Warren Buffet doesn’t understand something doesn’t mean that there isn’t a future for it.
So, whether you’re attracted to Bitcoin Futures Trading or turned off by it, there are a few things that are certain: That we’re in a new age of trading and that it is going to be exciting!