Is everyone ready to lose their shirts Monday morning?
Nobody really knows what's going to happen but there's a good chance that there will be significant downward pricing pressure beginning Monday as a result of Bitcoin futures trading on CBOE. The legitimacy that this lends Bitcoin could have the reverse effect for a while but word in the financial press is that there is more short than long interest. There will not be any market makers and counterparties will have to be matched directly. Some traders I know (who will not be handling Bitcoin at their banks but all of whom have some personal Bitcoin holdings) have been speculating what impact futures will have and no one is certain of anything. However, the best thesis seems to be that there will be downward pricing pressure because there is no incentive for anyone going long a futures contract to ultimately buy the underlying asset (Bitcoin). There
is plenty of incentive for sellers of futures contracts to
sell actual Bitcoin: miners and people who have amassed large Bitcoin portfolios will want to lock in a selling price to unload some serious coinage.
I don't think the volatility is much of a problem in and of itself unless I'm missing something. The problem is the difficulty of transacting in Bitcoin. These futures will be cash settled, so no Bitcoin actually
needs to be exchanged. This is great for speculators, which accounts for nearly all Bitcoin ownership. Now, more people can speculate without touching the stuff directly. However, normally, one hedges a futures contract by buying or selling the underlying commodity. This is required for market makers to participate and provide liquidity. Unfortunately, Bitcoin is particularly unwieldy and cannot be used for instantaneous hedging. That's the problem. It's going to be impossible to hedge Bitcoin because it's not correlated to anything (except time
). Seems to be a market for speculators and large Bitcoin holders/miners.
I got in on Bitcoin late and opened a position two weeks ago. Today, I sold enough to recoup my initial investment, and have kept the profits (well over 100% at this point) in Bitcoin, although I expect a lot of that to evaporate next week. Hopefully temporarily. I'm tempted to buy Ethereum and hold. One of the better-informed people in this space described the advantages of Ethereum as a platform. His argument is that those making the case that Bitcoin will act as a cryptocurrency "store of wealth" should probably look to Ethereum instead, which has a better chance of outlasting Bitcoin. Energy consumption is lower, the protocol is more flexible, and here's the important part: it's way easier for US Bitcoin holders to convert falling BTC into ETH than cashing out. Anyone who tried to log in to Coinbase the other day (which is what I use; the E-Trade of Bitcoin, basically) found the site to be down due to congestion. And when price movements are very large, it has been reported that Coinbase has a nasty habit of reneging on its "guaranteed" prices. Exchanges outside of the US, especially Bitfinex, are downright toxic.
Much of the rise in value in BTC this year was really due to other coin offerings. To purchase them, one had to exchange for Bitcoin, which drove up Bitcoin demand. If Bitcoin starts to collapse, ETH is the likely beneficiary by way of a similar mechanism. It's arguably the better platform, too.