A big day is upon us tomorrow when some computer code strings will for the first time be sold and bought on CBOE and, a week later, CME, two of America’s and the world’s biggest exchanges.
Wall Street, big banks, other institutional investors, and all the rest, will now be able to gamble on price rises and falls of an asset like no other, bitcoin.
It correlates with nothing else, not gold, not stocks, making it an asset of its own class. Valuation is difficult. While from a fundamental analysis perspective you’d think network congestion would cap its price, bitcoin has ignored it completely, rising to new highs.
Sometime, even news does not affect the asset. $70 million was stolen from a miner, for example, and bitcoin didn’t even notice.
So to say what will happen tomorrow when the asset starts trading on a somewhat smaller futures exchange by regular standards, CBOE, compared to the far bigger CME, is very difficult if at all possible.
The first unknown is whether anyone will care because traders might be very unfamiliar with the asset, so they might wait and see how it behaves or just dip their toes with small amounts.
“If people have expectations that it’s going to have huge liquidity on day one, they’re just wrong,” Mike Novogratz, chief executive officer of Galaxy Investment Partners, says. “It’s going to take a while to build liquidity. People need to go through at least one cycle to figure out how it settles.”
That non event might be quite an event because people do have expectations and if it looks like nothing is happening tomorrow something might start happening, the old buy the rumor sell the news.
But institutional investors can not ignore a market that has neared $300 billion just for bitcoin, and one such institutional investor in particular may be none other than Goldman Sachs, the poster boy of the 2008 crash.
“Goldman Sachs Group Inc. (GS.N) is planning to clear bitcoin futures for some clients as the new contracts go live on exchanges in the coming days, a spokeswoman for the bank said on Thursday,” reuters reports.
Although the contracts that are to launch are being called futures, they’re not really. They’re a purely speculative instrument that doesn’t require delivery of the asset.
In many ways they’re not much different from futures that OKCoin used to provide. You just bet on whether the price will go up or down, free to change your mind in the meantime, but in a week or two, dependent on the contract length, your position is closed and you either made profits or losses.
The day/time when all positions close can have influence on the spot price, but while OKCoin futures had as base collateral actual btc, CBOE and CME will be all just in fiat. So their influence on the “real” price might be simply psychological.
However, futures do usually track spot price. That may be because a professional trader will probably want to hedge with the underlying asset. So if futures go parabolic, they might buy more btc to cover some of their losses if they are in a short (sell) position and vice versa.
Demand for bitcoin, therefore, may rise as a hedge, but it may be the case the price rise we are seeing has been due to that increased demand as this Bloomberg chart shows:
If that is indeed the case, the question becomes whether the event has now already been priced in, something which no one knows, but bitcoin has been sidewaying since yesterday.
That may be in anticipation of tomorrow and that big question of whether we will see a rush as suddenly bitcoin enters a huge global market, and if there is a rush whether it will be in an upwards or downwards direction.
Something no one person can say, but perhaps the wisdom of crowds can help. So let us know in the poll below whether you think bitcoin will considerably rise or fall tomorrow.