This will fuel the cryptocurrency’s price rise, as crypto traders and dealers can hedge their positions based on the future market. For example Bitcoin miners will benefit from futures contracts as they can use them to hedge against their mining cost, getting money in advance from speculators hoping to make a future profit.
On the flip side, the launch of Bitcoin futures will attract greater scrutiny from the regulators which will cast a shadow on the fate of the Bitcoin in the long run. In this regard, the trade association for the futures markets, the Futures Industry Association warned the US regulator that not enough risk evaluation has been done on Bitcoin and the risks it poses to financial stability.
The launch of Bitcoin futures has aggravated other regulators, with scrutiny beginning to encircle the cryptocurrency. Hong Kong’s regulator issued a warning that only licensed firms can offer such products within Hong Kong. In Korea, the Financial Services Commission financial regulator issued a directive that bans securities firms from taking part in Bitcoin futures transactions.
Perhaps more worryingly, the levels of futures trading has not been as high as the initial flurry of excitement may suggest. The volume of trading since bitcoin’s launch on CBOE has been relatively low, especially compared with more established currencies futures.
So, although Bitcoin has the added legitimacy of being traded on futures exchanges, the relatively low levels of interest from big institutional investors is indicative. If history is anything to go by, the tulip bubble burst in February 1637 – not long after the Dutch created a futures market for buying bulbs in 1636 at the peak of tulip mania. The advent of futures trading may well further inflate the “Bitcoin bubble” and push it to its bursting point.