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Bitcoin is going mainstream. Over the weekend, Barron’s ran a cover story titled Bitcoin Storms Wall Street.
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This morning, the CBOE Futures Exchange announced that it will begin trading bitcoin futures on Sunday, Dec. 6. Meanwhile, the CME is going live with bitcoin trading on Dec. 18.
This news has been widely anticipated for several weeks.
This means that bitcoin will now be traded on major financial markets. And it allows bitcoin to be traded just like any other commodity such as coffee, gold or oil.
Now, most of my readers don’t trade futures contracts. So, why does this matter?
Because futures are a requirement for the Securities and Exchange Commission to approve a bitcoin Exchange Traded Fund (ETF). In the past decade, ETFs have become a very popular way for individual investors to purchase exposure to assets such as commodities.
For example, the SPDR Gold Shares (NYSE: GLD) has $34.8 billion in assets, reasonable 0.4% fees, and trades at a 0.01% premium to the asset value of the gold that it owns.
Let’s compare that with the Bitcoin Investment Trust (OTC: GBTC) – the only publicly traded fund that invests in bitcoin. It has $3.1 billion in assets, 2% fees and trades at a startling 78% premium to its bitcoin assets.
Changes for Bitcoin
The introduction of futures – and bitcoin ETFs in 2018 – will pave the way for greater accessibility and lower fees. Perhaps most importantly, I’d expect to see a considerable narrowing of the difference between the net asset value and the quoted share price.
JP Morgan reports that “The prospective introduction of bitcoin futures has the potential to elevate cryptocurrencies to an emerging asset class.”
The futures trading in bitcoin should add liquidity to the market. Additionally, futures will allow investors to go “long” or “short” bitcoin. For the first time, investors will have an opportunity to bet on a decline in the price of bitcoin. The creation of a two-sided market is one factor that will help increase liquidity.
Greater liquidity should help reduce some of the sharp day-to-day fluctuations that have become the norm for this cryptocurrency. It’s not unusual for bitcoin to move higher or lower by 5% to 10% in a single trading session.
The CBOE futures will trade with the symbol “XBT.” They are based upon prices from Gemini Trust, a digital currency exchange founded by twins Cameron and Tyler Winklevoss.
Bitcoin Billionaires
The Winklevoss name may sound familiar for folks who have watched Andrew Sorkin’s The Social Network. The Winklevoss twins are famous for suing Mark Zuckerberg, claiming that he stole their idea for Facebook (NYSE: FB).
The brothers won $65 million from their lawsuit, and walked away from Facebook.
They then invested $11 million from their settlement into Bitcoin in 2013 at $120. At the time, lots of people thought the Olympian rowers from Harvard were a little crazy.
Today, they’re viewed as crypto geniuses. Their investment is now reported to be worth more than $1 billion – making the brothers among the first “bitcoin billionaires.”
It’s not too late to cash-in on the bitcoin bull market. New financial products will dramatically expand bitcoin ownership for institutional and individual investors.
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