Skip to content

CME Group's Regulated Futures Market Could Allow Retail Giants to Accept Bitcoin

Announcement by CME Group to Begin Trading Contracts Bitcoin futures propelled the Bitcoin market to new heights two weeks ago. Many Bitcoin investors are anxiously waiting for trading to begin and expect further price increases. Indeed, when the world's largest futures market recognizes Bitcoin as a legitimate asset and decides to incorporate it into their offers, this seems like a very good thing.

What does it actually do?

But why? Apart from the CME Group's imprimatur, which is undoubtedly valuable in itself, what specific good will come from this new market? After all, creating a broad and regulated futures market will make it much easier for stock traders to bypass Bitcoin, which could make the stock plummet.

Cointelegraph had the opportunity to speak with David Johnson, CEO of Lazio and experienced foreign exchange trader (FX), to understand what the CME Group announcement means. Johnson believes that the biggest boost to Bitcoin will not come from trading futures per se, but what this trade allows: the adoption of retail

A lesson from the airlines

of the largest buyers of oil futures in the world. The reason is obvious; they must "lock in" the price of jet fuel to be able to charge passengers an appropriate fare. If airlines were subject to the daily vagaries of the oil market, they would find it almost impossible to function effectively.

The process of foreclosing the price of a product or asset is called "hedging". do not want to buy large quantities of jet fuel and must store them for long periods; all they want, it's a stable price. As a result, they go to the futures market and buy or sell specific types of options that effectively guarantee the price they will pay for fuel for a while.

Retail Adoption

At present, most businesses that accept Bitcoin as a payment method use third-party payment processors to receive Bitcoin and immediately convert it into cash and deposit the funds into the company's bank account.

See also  How to explain Bitcoin to your parents

It works, up to a point. Unfortunately, these companies do not have long experience and are quite small. Large retailers, such as Walmart or Amazon, would likely be wary of doing business with them.

The CME Group futures market changes all that. According to Johnson, large companies with prudent risk management strategies have been slow to get involved in Bitcoin because of the risk. There is a risk of Bitcoin storage.

There is a counterparty risk in dealing with a small payment processor without a long and reliable reputation. There is a risk of insufficient liquidity to exchange Bitcoin for money. There is a regulatory risk because your counterparties may not be in full compliance.

If you want Amazon or another mega-company to start accepting Bitcoin, the first step is to create a way to mitigate those risks. Johnson says that's the most important thing that the new futures market will bring.

Large retailers will be able to accept Bitcoin, convert it immediately into cash or hedging, and do it on a massive, reliable and regulated market.

Johnson estimates that the effects of the new market will not be visible for six to eight months, as liquidity increases and large retailers become aware of it. More places to spend Bitcoin, of course, will make it more useful to ordinary consumers and will likely increase its price, on time. Many in the community have long believed that the adoption of retail is one of the keys to increase the price of Bitcoin; without a place of cryptocurrency, it is nothing more than a speculative instrument.

Institutional Investors

CME Group will also offer a ramp to traditional institutional investors. Some of them have hundreds of billions of dollars available to them, but they usually have strict rules on what they can invest. At the present time, these institutions have moved away from Bitcoin because of the difficulty of storing money or dealing with Bitcoin exchanges without a long history of doing business

See also  IOTA clarifies Microsoft Quote misleading: no official partnership

While An institutional investor might not be able to buy Bitcoins directly; there will probably be far fewer restrictions on buying futures. Institutions can therefore bet on the price Bitcoin without actually having the asset

Paper Bitcoin

This brings us to a rather interesting point: it is about a futures market. No real Bitcoin will change hands in the CME market. Indeed, market participants will exchange paper bitcoins. Commodities experts such as Ted Butler have long criticized "silver paper" and "gold paper" as trading in regulated markets and have accused these markets of distorting prices. real physical metals.

Future ETF

Almost as important as the adoption of retail, the CME exchange will almost certainly result in the SEC's approval of a Bitcoin Exchange Traded Fund (ETF) at some point in the future. The regulator had already said earlier this year by rejecting the proposal of the Winklevoss twins, that approval would be likely if the regulated futures markets were established:

"When the spot market fails Is not regulated – there must be regulated derivatives markets related to the underlying asset with which the exchange may enter into a surveillance sharing agreement. "

A ETF would be great news as it would provide another institutional and retail means.

In the case of an ETF, the fund must hold the underlying asset, which means that if the ETF has traded shares equal to 100,000 BTC, it must hold 100,000 BTC.This buying pressure could only announce good news for the price Bitcoin.

Lots in the Bitcoin community have long wanted to invest some of e their 401 (k) or IRA in Bitcoin, but found it difficult or impossible to do. Those who consistently succeed pay high fees (to create a self-directed IRA) or large bonuses (to buy shares of GBTC).

See also  Ambroise Baldet of JP Morgan on what the company wants from Ethereum

A Bitcoin ETF would be a simple and inexpensive way to add Bitcoin to your traditional retirement portfolio. It would be as easy as calling your broker and asking him to place the order … or do it yourself online.

Smart regulation

Johnson noted that regulation is inevitable Owners of Bitcoin should adopt smart regulation. In fact, he suggests that Bitcoin companies and investors come up with their own body of rules that regulators could easily adopt.

It would be a much better option, notes Johnson, than having incompetent regulators about Bitcoin. For Bitcoin to continue to grow, integration into existing infrastructure is essential, Johnson said. Wall Street's growing acceptance of the motto and increased understanding of regulators will go a long way toward getting Bitcoin out of the shadows and raising its price

The media's attention, the # Acceptance of Wall Street, the possible adoption of retailers and ETFs a bright future for digital currency. While cryptocurrency is becoming more commonplace and integrated with the financial markets and everyday life, one may wonder if Tim Draper is right:

"In five years, Bitcoin and others Crypto-currencies will be so relevant … there will be no reason to have fiduciary money. "