Why Bitcoin Futures Are A Game-Changer

The New York Stock Exchange, CME Group Inc. and Cboe Futures Exchange are just a few of the mainstream financial institutions that will start offering bitcoin futures over the next few weeks. This could impact non-accredited hodlers and bitcoin newbies in several ways. Lots of new players are about to buy bitcoin through these derivatives.

“There will be more participants. Some are going to make money and some will lose money. But I think what’s clear is the amount of activity will increase,” Data Capital Management CEO Michael Beal told International Business Times at the Artificial Intelligence & Data Science conference in New York City. Bitcoin’s blockchain network is already plagued by scaling issues. But all is not lost. California-based Lightning Labs is building a scaling solution with faster and easier payment methods for purchases like coffee and news articles. It stands to reason the same layered approach that works for cryptocurrency micropayments could also help alleviate the congested highway for other network transactions.

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“Imagine if your favorite firm, say BlackRock, who already has billions of dollars and relationships with all these different people,” Beal said. “Now you’re going to have money coming in [to bitcoin] from those channels as well.” Supply and demand aren’t the only factors destined to influence the bitcoin market in 2018. The outside world impacts virtual currencies too, just like stocks. Media coverage, business developments and politics can all impact bitcoin prices.

Many finance professionals now use machine learning tools to track patterns in traditional markets. Beal, who previously co-founded the Big Data and Advanced Analytics group at JPMorgan Chase, is now curiously watching the cryptocurrency space develop. “What I want to see is when do you get to the point where you have enough participants and market volume that you can expect to get it for a price close to where you thought it would be,” he said. “People think all these movements in bitcoin are random. They’re not.”

Katya Chupryna, former hedge fund manager founder turned chief strategy officer at the fintech startup Thinknum, has been tinkering with cryptocurrency and researching bitcoin since 2015. “Bitcoin derivatives are just another way to make things more liquid and transparent, it moves around easier,” she told IBT. “What will be a game changer is the way this could spread adoption, not just bitcoin, but across the whole cryptocurrency space.”

These days even Wall Street’s bitcoin skeptics see the business potential of bitcoin’s underlying blockchain technology. CoinDesk reported Bank of America recently filed a patient for a cryptocurrency exchange system. Goldman Sachs will start clearing bitcoin futures contracts for select clients this month. “All the major banks are investing in blockchain, even if not in cryptocurrency specifically... all the major banks are finally on board,” Chupryna said. “The next thing we could see is big cryptocurrency players starting to have their own asset management arms.” Hedge funds and family offices want to get involved in the cryptocurrency space too. “They go through a third party to participate, but they do participate,” Chupryna added.

None of this is to say blockchain-based financial products are cruising through the compliance process. U.S. regulators denied the move for Bitcoin ETFs, aka retail investment products for people who are not accredited investors. So bitcoin futures won’t be as accessible as stocks quite yet. In the meantime, most experts agree it is important for people to educate themselves about bitcoin before they consider any purchases.

Chupryna said she’s seen many accredited investors jump into the cryptocurrency space without educating themselves about the technology. “That in itself is very dangerous because that’s how bubbles are created,” she warned. On the other hand, Chupryna is optimistic about the overall potential of cryptocurrency derivatives. “Institutional investors are the first round who will test a new idea for you,” she said. “This is how a product goes from niche to institutional to mainstream.”