First of all – for those of you who do not know – what is a “future?”
A futures contract – or futures for short – is a contract between two parties where they determine a fixed price and a fixed date when a transaction will occur. For example, if I wanted to buy Microsoft stock on January 1, 2018, when I think Microsoft stock will be worth $120. So, I will buy a contract from a “seller” that specifies the price and date and the seller sells that [futures]contract to me. When January 1, 2018, comes around, the contract is settled. That means that I have to give the seller $120 and the seller has to give me one stock of Microsoft. If the price of Microsoft goes up during the futures contract, I am given the difference.
What I believe Bitcoin futures will create are “predictable cash flows.” For example, Bitcoin miners pay incredible utility (electricity) fees for mining Bitcoin and many of them cannot predict what that utility bill will be each month. Well, if they purchased “futures” they would have a “predictable” cash flow. In the stock vernacular, this is called “hedging.”
I speculate that the cause for Bitcoin’s run-up recently is over anticipation for these Bitcoin futures by CBOE and the CME Group. Let’s see what happens.
Everyone in the industry is very cautious right now about Bitcoin futures. No one really knows what will happen. I personally do not expect a huge pump of liquidity (converting Bitcoin to cash) tomorrow.
I think that those who already own Bitcoin will hold on to it. Those who are buying are buying for the purpose of holding for the long-term in anticipation of Bitcoin reaching $20,000 to $100,000 over the next year. If I am correct, then the price of Bitcoin will see a slight increase on December 10.
On December 18, when the CME Group – who are much bigger than CBOE – launches Bitcoin futures and if the liquidity is low, then Bitcoin will skyrocket.
If I am wrong, then these futures markets will serve to eventually stabilize the price of Bitcoin over the long-run reducing its volatility.
I am a pure believer in “Decentralization.” That was why Bitcoin was created: To prevent control of it by banks, government, and other financial institutions. If the entry of Bitcoin into the futures market does impact Bitcoin so as to stabilize its price and volatility, then this is a chess game to control Bitcoin by its enemies. It is a clever game at that. My thinking is: “Why should those who view Bitcoin as a threat NOT do this?” They will!
However, Bitcoin and those who are staunch believers in the coin and technology will not sell their Bitcoin, they will hold on to it. That act alone will send a strong signal to those who try to control Bitcoin that “we aren’t having it.”
Bitcoin has surprised everyone so far.
I hope in the days ahead, it will again.
At any rate, these are exciting days and we are in for a very wild ride.