Trading in Bitcoins is set to undergo a big change if the proposed launch of Bitcoin futures by CME goes through without any hitches. Up until now, the market has favored the long only investors, as it is not possible to short huge bitcoin amounts.
Bitcoin Futures For Efficient Trading
Terry Duffy, CEO and chairman of CME group has announced on November 13 that the derivatives exchange group will be listing bitcoin futures in early December.
In an interview to CNBC, Duffy has said that the listing would be launched and ready for trading by December second week. The bitcoin futures would be the first product related to bitcoin released by the firm.
On queries related to handling of the major price fluctuations in bitcoin, Duffy stated that trading would be stopped in the event of major swings in the price. And for shatteringly steep drops in price the current rules would be followed.
Earlier in October, the firm had declared that the bitcoin futures would be related to the price index released by the firm in 2016 and settlement would be through cash.
With the longs and shorts, the firm is prepared to match with the market fluctuations as laid by the existing rules of the company. The bitcoin futures launch announcement has resulted in an increase in bitcoin price.
This favorable increase is mainly attributed to the fact that the bitcoin futures can lend authenticity to cryptocurrency asset attracting institutional investors.
Margin trading with bitcoins
The biggest advantage for investors in bitcoin is they can short huge quantities of the cryptocurrency which they were unable to do until now.
According to Duffy, bitcoins investors could buy or sell the bitcoin, but not short it. But with the futures a more efficient investing can be done.
Although it is possible to short bitcoin now using margin trading, the exchanges present now do not have the volume or liquidity that large scale investors are looking for. Bitfinex for instance, allows borrowing and selling of digital tokens provided other users agree to lending the assets in margin trading.
But not many exchanges allow this type of margin trading. They allow just the regular selling and buying that long only investors prefer.
Moreover Bitfinex and other exchanges involved in margin trading do not allow trading by US citizens. With the announcement of regulated futures, short sellers will not have to borrow bitcoins, as the trades are mostly settled with cash.
Wait and Watch Approach
However it is not best to be too optimistic about the success of bitcoin futures. With the level of volatility that bitcoin has been exhibiting in recent times, short selling bitcoins may not be as profitable.
According to JP Morgan boss Jamie Dimon, it is not wise to short bitcoin as it can touch a huge high like $100,000 before plunging to desperate depths.
With bitcoin cash giving a strong competition to bitcoin value, the value of bitcoin has been erratic in the past week. And if the situation remains volatile, it is best for investors to wait and watch instead of making hasty decisions on the bitcoin futures.