It's all about a little thing called "custody"...
Months ago, a buzz stirred in the crypto markets as excitement built for mainstream adoption of Bitcoin investment. The excitement surrounded the introduction of futures contracts to be issued on the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE). These two platforms were perceived to lend legitimacy to cryptocurrency as traditional, mainstream traders could place futures on Bitcoin.
One key caveat remained, however. These futures were not traded in actual Bitcoin. In reality, these were merely side bets - gambling on the prices of Bitcoin fluctuating up or down, but being paid out in USD fiat. The CME and CBOE did not actually hold any Bitcoin whatsoever. Thus, the supply and demand element of the free market was unaffected.
What was affected was the perception of an approaching bearish market. But this could be attributed to so many factors, it's impossible to pick any one event as a cause of the market downswing. Even though the introduction of what were mostly bearish futures, predominantly shorts, might well have had a psychological effect on the market, it could not have any effect on the actual market supply and demand relationship since the exchanges had no custody of actual "physical" Bitcoin.
It's strange to think of Bitcoin as "physical" or "virtual", but in this case, there is a distinction to be made. The New York Stock Exchange (NYSE), owned by Intercontinental Exchange (ICE), purportedly has plans to offer Bitcoin swap trades that will be settled in what is now being referred to as "physical" Bitcoin, instead of merely paying out contracts in fiat. They can do this because they will have custody of actual Bitcoin, using a cold storage solution to ensure the security of the held assets.
This is a crucial event in the mainstream adoption of Bitcoin and cryptocurrencies. It allows for full SEC regulation and protects investors' physical assets rather than simply tabulating results and paying out winners. It also is crucial because the buying and selling of actual Bitcoin will have an effect on its price, especially when purchased in large quantities for trade on large-scale exchanges like the NYSE.
Importantly, this allows for massive investment opportunities, as noted in this Zerohedge article:
"A custody solution would also open the door for pensions and endowments... cryptocurrencies now 'look to be becoming an emergent asset class…most obviously at the expense of gold.'"
Pensions and endowment funds investing in Bitcoin. This should not be under-estimated.
Custody is key. It looks like the owners of the NYSE have come up with a cold storage solution that could bring Bitcoin to the masses.
This could get very interesting very soon.
*This is not professional trading advice - it's just my opinion!
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