Maybe Bitcoin Futures Isn’t Bullish for Bitcoins Price

CME Launches Bitcoin Futures on November 14th. This is a big deal because it legitimizes Bitcoin as a player on the "institutional" stage. It says there is major demand from large players and that the exchanges and regulators see a future in the asset class.

My sense is that Bitcoin owners view this launch as unbelievably bullish for the price of Bitcoin. Bitcoin tends to have younger investors who in general have had nothing but success from owning, trading or holding Bitcoin. They buy and the price goes up. Some well known "old guy" says something bad about Bitcoin, yet the price goes up more. Bitcoin holders thump their chests, mock the "old out of touch" naysayers and go back to talking about their wealth.

By the way, I'm not here to guess what will happen to Bitcoins price. I own Bitcoin and think its an amazing asset. Don't trade off of what I write here.

Not All Bitcoin Futures Traders are Buyers

Lets say that you are Warren Buffet and you think Bitcoin is a huge bubble (he actually does, see here). If you wanted to express that investment view (i.e. short Bitcoin) its pretty much impossible. He's not going to open a Coinbase account and start shorting (explanation of why here).  With CME futures though he'd have no problem launching his short orders. Thanks to the exchange he doesn't have to worry about counterparty risk, regulator risk or operational risk.

For the first time ever these "old out of touch guys" can back up their "bitcoin bubble" views.

Bitcoin, Gold and Futures Trading

Many like to say that Bitcoin is "the new gold" from an investment perspective. Both bitcoin and gold capture the same objectives of getting your money out of the banking system, being an inflation hedge, etc. Bitcoin, however,  is much easier to store and transport. Gold retailers also say Bitcoin is hurting their business.

Gold futures started trading on the COMEX NY exchange in December 1974 and as you can see in the chart below, it didn't equate to a major increase in price in the months or even years following.

Image result for 1974 gold futures

Who is to say that this has anything to do with CME Bitcoin Futures trading, but its an interesting analog. (Note these chart annotations where on the chart, they're not mine and irrelevant to this post.)

Between Futures launching on November 14th, and the possible Segwit2x fork  which should happen on roughly the same day its shaping up to be a wild month for Bitcoin.



SHARE THIS
Previous Post
Next Post