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Bitcoin on Fire: What Investors Need to Know

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Despite huge volatility, bitcoin is the hottest trade this year. After wild swings last week, the digital currency hit another record high of above $11,800, representing more than 30% surge from a low of $9,021.85 hit on Nov 30.

The cryptocurrency topped the five-figure mark of 10,000 on Nov 28 and climbed another $1,000 in 24 hours. Then it dropped more than $1,000 in just a few hours.

Bitcoin Futures Coming Up

The latest surge came as the Commodity Futures Trading Commission approved the listing of bitcoin futures contracts on the Chicago Mercantile Exchange CME and Chicago Board Options Exchange CBOE. CME will begin initial listings of bitcoin futures contracts on Dec 18, while CBOE will be the first to begin bitcoin futures trading on Dec 10.

The introduction of bitcoin derivatives will bring a great deal of liquidity and legitimacy to the cryptocurrency ecosystem. It would give investors a way to buy and trade in the digital currency market, which is otherwise not readily available. The derivatives would upgrade the bitcoin status to a more-established asset class. A better and mature regulatory environment will be a huge boon to the digital currency, leading to increased investment in the booming cryptocurrency, with a growing number of retail investors.

Further, Nasdaq plans to launch bitcoin futures as early as in the second quarter of 2018. In the race to bitcoin trading, the Tokyo Financial Exchange is also preparing to launch its own bitcoin derivatives futures product. All these will pave the way for further rally.

Venezuela Cryptocurrency On the way

The digital currency also got a boost from Venezuelan president Nicolas Maduro’s announcement of starting the country’s own cryptocurrency called the “petro” to shore up its economy. The currency was backed by commodity reserves, including oil, gold, gas and diamonds.

Bullish Views

Many market watchers are optimistic about the future of the digital currency. Billionaire investor Mike Novogratz predicts bitcoin to hit $40,000 at the end of 2018. According to him, investors are pouring into cryptocurrencies due to lack of trust in financial institutions following the 2008 crash. Standpoint Research’s Ronnie Moas projects the cryptocurrency to hit $14,000 in 2018.

A combination of other factors such as soaring demand and rising institutional investor interest are pushing up the cryptocurrency.

Bitcoin Turning Bigger and Better

With the latest surge, the digital currency is just a few percentages away from $12,000 and has become the world’s sixth most valuable circulating currency in the world, within eight years of its launch. Total value of all bitcoins in circulation has reached $190 billion.  

The astronomical surge of more than 1000% this year has made bitcoin more valuable than some of the largest companies, namely PespsiCo PEP, Boeing Co.’s BA and Mc Donald (MCD - Free Report) , with a market cap of $166.1 billion, $161.6 billion and $137.8 billion, respectively. The cryptocurrency is even more valuable than the combined world’s most influential banks Goldman GS and UBS Group UBS. Goldman has a market cap of $94.4 billion while UBS has $66.2 billion.

If these weren’t enough, the cryptocurrency surpassed the estimated worth of some of the world’s top billionaires like $90 billion for Gates and $83 billion for Warren Buffet. Further, bitcoin is worth more than seven times an ounce of gold, which is traditionally seen as a safe haven amid turmoil.

Moreover, bitcoin has been firing all cylinders, as Google searches for bitcoin have surpassed searches for President Donald Trump as well as stocks in the last few weeks. Google searches are indicative of mainstream investor interest in bitcoin.

Bitcoin ETFs Next

The bitcoin futures would pave the way for bitcoin ETFs, some of which were already rejected by the Securities and Exchange Commission (SEC), citing lack of regulation of the bitcoin spot market and unavailability of bitcoin futures contracts.

Earlier this year, the SEC denied various requests for the first proposed bitcoin ETF — Winklevoss Bitcoin Trust (COIN). The bitcoin ETF, proposed by SolidX Management, was also rejected in March. VanEck filed for an ETF that invests in bitcoin derivatives in mid-August but withdrew its application. REX also filed for two ETFs, namely REX Bitcoin Strategy ETF and REX Short Bitcoin Strategy ETF, which will also invest in bitcoin-based derivatives.

In late September, ProShares filed for two ETFs, ProShares Bitcoin ETF and ProShares Short Bitcoin ETF. These funds also intend to purchase derivative contracts for exposure, rather than actual bitcoins.

As such, with the launch of bitcoin futures this month, bitcoin ETFs is not far from entering the market. Many analysts believe that the SEC will approve ETFs that trade bitcoin futures contracts in the near future.

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