Will there be listed bitcoin futures in 2017?
Yes. The race is on between the CME Group and the Cboe Global Markets Inc. Barring any regulatory issues, I would be very surprised if a bitcoin futures contract was not listed by the end of 2017. Because of all of the media attention, being first to the market is critical. Usually, whatever product becomes first to market will become the benchmark that other products that follow will be compared against. In addition, if the first to market can create significant volume, it will be difficult for the next competitor to move that order flow to its exchange and product.
Will it trade?
Institutional investors restricted to exchange-listed products, money managers, and private traders that have been monitoring the skyrocket returns of the bitcoin market will now have a way to participate in this market with the comfort of a product listed on an exchange and the protection of the exchange clearinghouse. The question is, will the institutional order flow begin to trade the bitcoin futures? It would be difficult to have a successful product without the institutional order flow support.
The creation of bitcoin futures also creates the possibility of exchange-traded funds (ETFs). ETFs would provide another mechanism for the private trader to participate in this market and institutional traders that are barred from investing in the options and futures bitcoin markets.
The attractiveness of the exchange-listed products is that it provides the exposure to the bitcoin price movement and trade management strategies without having to own the bitcoin itself. Exchange-listed bitcoin products also allow the ability to short the bitcoin price movement which you cannot do in the cash bitcoin market.
The challenge for a bitcoin futures product will be for it to maintain its relevancy as the bitcoin itself morphs into other products and to also deal with the potential government, central bank, political actions and hacking that could be detrimental to the trading of bitcoin in the cash bitcoin market.
Will one exchange win the liquidity battle for bitcoin futures or will it trade on multiple exchanges?
At the beginning of the listed bitcoin listed marketplace, having more than one exchange listing products would not be surprising and expected as exchanges search for the next major trading volume creating the product. Unless the bitcoin futures products are distinctive in their features and provide unique market exposure and returns, it is hard to imagine similar bitcoin futures products that will survive on multiple exchanges. Sooner or later one exchange will have the dominant share of trading volume.
It is also important to attract international participation. The key to international participation will be the exchange that provides basically 24 hours of trading to attract order flow in other time zones.
Dan Gramza is President of Gramza Capital Management Inc. and DMG Advisors, LLC. He provides daily market updates from around the globe on subjects ranging from the Nasdaq and currencies to crude oil and grains at dangramza.com.
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