CME Group’s recent decision to list regulated bitcoin futures contracts by year’s end drew doomsday scenarios from some Wall Street investors, but blockchain and fintech entrepreneurs see it as a sign of the cryptocurrency’s growing acceptance which will bring more mainstream investors to bitcoin.
Some Wall Street investors, such as Joe Saluzzi, a principal at Themis Trading, see parallels between bitcoin derivatives and the collateralized debt obligations that contributed to the financial crisis of 2008.
Several blockchain and fintech enthusiasts, however, see CME’s move as a sign that the cryptocurrency is gaining acceptance, a development that factors into bitcoin’s continuing price gains.
The ‘Inflection Point’
“The CME announcement marks the official inflection point of bitcoin crossing the chasm from being championed exclusively by tech-savvy early adopters to starting its proliferation among established financial institutions,” Serafin Kion Engel, CEO of DataWallet, a blockchain wallet for data exchange, said in a prepared statement.
“While it was easy for critics to label early adopters’ enthusiasm as foolish, the adoption of bitcoin by institutions such as CME gives the cryptocurrency a seal of approval that will eradicate even the most well-reasoned criticism pundits may voice,” Engel said. “This paves the way for bitcoin living up to its full potential and soaring high into the five digits.”
Taulant Ramabaja, chief technology officer at ULedger, a blockchain based solution for data assurance, storage and other services, said CME will make it possible for institutional investors to take positions with bitcoin while complying with existing counterparty and regulatory requirements.
“We can expect a lot of large scale institutional money to flow into the bitcoin and cryptocurrency ecosystem from now on, assuming future regulation won’t hinder the emergence of cryptocurrencies as a legitimate asset class,” Ramabaja said.
A Boon For Crypto Products?
The ability to hedge against bitcoin enables the creation of all manner of crypto products, in addition to simple investment and trading, said Bharath Rao, CEO of Leverj, a decentralized platform for cryptocurrency derivatives trading.
“Institutions have been dabbling gently in the crypto market using specialized hedge funds as vehicles, but the introduction of bitcoin futures by the CME opens a huge new opportunity for gaining exposure to crypto currency,” Leverj said. “After all, bitcoin is the bellwether of the entire crypto market, and a regulated, developed exchange product gives confidence to trade large size for many institutions.”
Institutional Money Expected
Sheffield Clark, CEO of Coinsource, a bitcoin ATM network, said institutional investors are looking for an opportunity to capitalize on bitcoin’s growth in the last five years.
“One of bitcoin’s few setbacks was accessibility to institutional money; now that’s about to change,” Clark said.
“This move by the CME will bring new professional interest in crypto asset investment and trading,” agreed Tor Bair, head of Enigma, a cryptocurrency investment platform. “While providing new demand for crypto assets, it also creates significant opportunities for data-driven investors and traders who stand to benefit from increased liquidity and volume.”
Abhishek Pitti, CEO of Nucleus, a provider of sensor technology that uniquely identifies users and senses pressure, motion and acceleration, said CME has a better chance to obtain Securities and Exchange Commission approval for its bitcoin futures contract than other organizations that have sought such approval.
“If CME does manage to achieve this feat, one of the largest barriers in introducing a bitcoin-based ETF may soon be removed, which will open up the floodgates for both institutional funds and retail investors who haven’t had exposure to bitcoin to get in on some of the action,” Pitti said.
“We could very well see bitcoin going multiple folds higher when that happens,” Pitti said.
A Note Of Caution
This does not mean that there will not be growing pains, however.
Pitti noted that bitcoin is different from traditional commodities like gold, copper or rice that are currently traded in the futures markets. As a result, there will be a lot of teething issues that CME will face, as it does not have any other commodity that behaves like bitcoin.
“What’s more, this commodity can be procured in many more unregulated cryptocurrency exchanges around the globe, which could potentially steer away a lot of traditional and conservative investors,” he said.
Fork Also Raises Concern
Cryptocurrency entrepreneurs also see the SegWit2x fork, confirmed for activation on Nov. 16, as having a potentially significant impact on bitcoin.
“I anticipate strong movement of bitcoin from wallets to the exchanges supporting the new currency, because many will see it as an opportunity of free money,” said Perry Woodin, CEO of Node40, which offers blockchain-related services and digital currency accounting services.
“But what I will stress, is that, under current IRS regulation, bitcoin is indeed a form of property and is subject to capital gains tax once it’s sold. I anticipate similar rules for Bitcoin2x, and from past experience, the majority of owners will blatantly ignore their digital currency tax compliance responsibilities.”