Whats the big deal about Bitcoin Futures?

Just when I thought Bitcoin couldn't get any more interesting. There is more intrigue ...

Futures Contracts

Businesses needs to plan for the future. They need to be able to ensure they can pay their workers at Christmas time, and have a steady pipeline of cash flowing all through the year.
Adam Smith described specialisation in Labour in his seminal 1776 work and it is generally accepted that manufacturers and other production industry are more productive and profitable if they focus on what they are good at.

"A bird in the hand is worth two in the Bush"

Corn

A large Corn farmer in the US Mid West doesn't bet on the how much a bushel of corn will be worth after the harvest. He has to pay his workers regardless. Wisdom dictates that he should leave it up to finance experts at institutions such as the Chicago Mercantile Exchange (CME). These professionals, in theory at least, can model the correct price that the farmer needs to pay today so that they can take the uncertainty out of his future revenue stream and get on with his business today. At exchanges such as CME, a regulated, efficient market decides the price for delivery of a commodity at a future date and lets manufacturers and producers get on with what they are good at today.
Corn was the origin of modern Futures Contracts in Chicago but the modern financial systems has found more and more exotic uses for them and extended them to everything from; locking in the future cost of Hurricanes, the outcomes of Political Events and now what price a Bitcoin will be next year.
What I haven't yet been able to figure out is who needs bitcoin for delivery in January 2018?

Hedging Liabilities

As international trade developed and the benefit and stability for people to hedge future liabilities has been established more and more commodities, currencies and other contracts have been added to the items listed in these market places known as Futures Exchanges. Two of the biggest in the world will be trading Bitcoin shortly. The Chicago based CBOE market began trading Bitcoin Futures yesterday and the CME (also Chicago based) will begin next Monday.

Futures Contracts

In order to allow contracts to be traded on a market in an efficient way Futures Contracts are standardised and are traded according to certain rules. These are contracts to take delivery of a good at a later date that are agreed in a tightly regulated market. Participants purchasing or selling these futures contracts will have to abide by the rules of the exchange that its listed on. For instance the exchange may halt trading if the price moves by a certain amount in the day.

Whoa do they not know this is Bitcoin???

Yesterday Bitcoin began trading on one of the biggest Futures Markets in the world. It's now possible to lock in a price for a Bitcoin for delivery at a Future date. In this case the trade will be on a cash settlement basis, no Bitcoin will be changing hands on the exchanges but it will allow more people to get exposure to Bitcoin assets without having to actually buy any Bitcoins. It also adds an air of legitimacy to the Crypto space and brings more interest into these weird and wonderful blockchain tokens. This has to be a good thing right?

• Details of CBOE contract for Bitcoin Futures
• Details of the upcoming CME contract for Bitcoin Futures

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So where is the Intrigue?

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Manipulation

The irony of Bitcoin not being traded on a mainstream "regulated" market before this week was that it was less prone to the Gordon Gecko and Bud Foxes of this world. Now the full resources of the traditional Capital Markets are bearing down on Bitcoin so watch out. I still haven't figured out who needs to lock in the price of Bitcoin at a future date.

• Could the only use of this be to manipulate the price?
• Do you think their is an incentive for the status quo to be maintained by traditional finance?

all I have are questions...

Reality is that manipulation is rife in the financial markets, not only in Hollywoods portrayal of these fictional Options Traders (A Future is another type of Derivative Instrument), probably the best example is how the 2 Brother cornered and manipulated the Silver market in the 1970s.

Lines in the Sand

In the linked article @imaginetraffic describes how there are three camps in the war for the future of Bitcoin and their war crys go like this:

• The believers — War cry “Hodl”
• The skeptics - War cry “But, but…Tulips!”
• The institutions — War cry “We want your cheap Bitcoins now so we can sell them back to you later at a markup.”
  Source: https://medium.com/@ImagineTraffic/will-the-futures-market-do-to-bitcoin-what-it-did-to-gold-b7d35704641

I think this is a very accurate description and the last group probably explain much of the movements in price of Bitcoin over the last year. I have been trying to reason why traditional finance has been so anti Bitcoin.

• I am huge on conspiracy theories but is it that they want cheap Bitcoins?

more questions...

A very interesting post to read is this coindesk article where the author searches for who will use Bitcoin Futures but fails to land on a convincing answer.

• https://www.coindesk.com/threat-bitcoin-futures/

So what do you think the big deal is about Bitcoin Futures?

All I know is it's time to get out the popcorn and watch where this rocket ship is headed...

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Thank you for reading this. I write on Steemit about Blockchain, Cryptocurrency, Travel and lots of random topics.



Images are from https://pixabay.com/.

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