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Nov 30, 2017
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It was news that came like a real bombshell. CME Group — the world’s largest regulated derivatives exchange — announced that it is planning on listing bitcoin futures contracts. These future contracts will be launched on December 10th.
For many financial analysts and expert a move like this is something the Bitcoin ecosystem desperately needs. Although Bitcoin and cryptocurrencies as a whole are on the verge of becoming a newly accepted asset class, they will never truly be one without a proper market to short or hedge against, is the belief of many from the traditional banking industry. This is why, Bitcoin needs to grow up, so they say. For these folks having no professional system of derivatives around Bitcoin is also the reason why the Securities and Exchange Commission (SEC) has been struggling to approve the various endeavors for Bitcoin-ETF ever since the beginning of this year. With futures on Bitcoin in place, the set-up of several Bitcoin-ETF will simply be a matter of time. Once ETF are ready to be invested in, institutional investors will really start flocking into Bitcoin and possibly other cryptocurrencies because with an ETF comes regulation and with regulation, simplicity and trust is brought to the system.
Are Bitcoin futures the new CDOs?
While there are the ones pushing to hook up Bitcoin with financial derivatives like futures, there’s also many critics within the established industry, who eye these developments with great skepticism. As a matter of fact, some claim to see parallels between bitcoin derivatives and the collateralized debt obligations (CDOs) that played a major role in contributing to the financial crisis of 2008. Just as CDOs were purely understood by the banking industry at that time, currently Bitcoin is just as must a black box for many within the banking sectors. It’s often heard nowadays that the financial industry hasn’t really learnt anything since the last crisis. By incorporating Bitcoin into their business, the industry is confirming this criticism right away, is an argument brought forth against the adoption of Bitcoin by Wall Street.
Ironically, the critics of Bitcoin and its adoption into the established financial system are getting support by many of the true Bitcoin enthusiasts themselves. Quite a few of these people would rather have Wall Street be demolished by Bitcoin than having Bitcoin be embraced by the very banks it was meant to replace. In fact, reading the original white paper by Satoshi Nakamoto makes it pretty clear: The Wall Street-ization of Bitcoin is probably not exactly what its founder envisioned. For some in the Bitcoin community the Wall Street money that is now flowing into Bitcoin is just unsustainably inflating the price of Bitcoin. Once the inevitable will come – the burst of the biggest credit bubble in history, many players at Wall Street will have a hard time scrambling up enough liquidity to pay down debt. Thus, money that is presently going into Bitcoin will be gone from Bitcoin just as fast as it originally poured in.
It’s certainly true that Wall Street bankers do not really share the sort of ideological mindset that many of the true Bitcoin enthusiasts have. The radical idea behind Bitcoin is not the reason number one for their investment. At the end of the day, it’s more about making money. But just because they are out to make a buck, every serious fund manager in the world will probably be using Bitcoin in a few years time, because the cryptocurrency will be their last hope of effectively diversifying their portfolio and also the one of their clients. Because Bitcoin is still nascent, has different background and is organized completely different than traditional assets, it will most likely be seen as a hedge against the everything bubble we are in right now by many asset managers. Even if this so-called negative correlation between Bitcoin and traditional markets will decrease over time, because the cryptocurrency is adopted more and more by just these markets.
That’s how the world works
So although the current financial development around Bitcoin might not be liked by everyone in the true Bitcoin community, it might not be as problematic since not even Wall Street will be able to thwart Bitcoin’s non-centralized structure. This is why one should approach the current happenings as neutral as possible – there’s nothing anybody can do about it anyways. It’s the more pragmatic Bitcoiners, who say: Whoever thought the success of Bitcoin will never attract the financial players from the established world, doesn’t really understand the way the world works. Because that’s just how the world runs its course. On a positive note, this people even claim that the adoption of Bitcoin by Wall Street is the first time in history, where ordinary people had and still have the possibility to get into an asset class before Wall Street can get in, because they were and still are hindered by the current regulatory environment. If that isn’t any good!?
So which position should one take after all in all of this? The best way probably is: Neither condemn nor celebrate the Wall Street-ization of Bitcoin. This way one will not be taken in by illusions and won’t be caught off guard if unpleasant things happen. Taking a realistic stance is probably the best thing to do right, because there’s probably a grain of truth in both position.
Image by flickr.com
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Bitcoin
