Bitcoin skyrocketed to another new record high above $13,000 today. It is now up more than 1,200% this year while its market cap has risen to over $229 billion.
The cryptocurrency has been surging of late thanks mainly to optimism generated by plans for bitcoin futures. Last week, the Commodity Futures Trading Commission (CFTC) granted regulatory approval for listing of bitcoin futures on two of the world’s largest futures exchanges.
The CBOE announced it would begin trading bitcoin futures on December 10. The CME would launch bitcoin futures contracts on December 18.
Nasdaq has also joined the race and is planning to launch bitcoin futures
as early as the second quarter of 2018.
Launch of futures would be a major step in the cryptocurrency becoming mainstream, as derivatives will provide much needed liquidity and also legitimacy to it.
Many traders and investors have avoided bitcoin due to its extreme volatility. Derivatives will provide them an easy way to bet on the price of cryptocurrency, both up and down, as well as hedge their exposure.
Further, many institutional investors are prohibited from investing in bitcoin directly and derivatives would provide them a way to invest in it.
Traders love volatility and with stock market volatility so low over the past few months, many of them may embrace bitcoin to make (or lose) money on its wild price swings.
Bitcoin price may get further boost as it becomes mainstream. On the other hand, it will also provide an opportunity to skeptics of bitcoin to short it as making negative bets on it are not easily possible as of now.
Futures are also expected to pave the way for approval of bitcoin ETFs. ETFs would provide investors a convenient way to get exposure to bitcoin.
Earlier this year, the SEC had rejected bitcoin ETF applications including one proposed by Winklevoss twins but they are now reviewing the decision again.
There were some filing for ETFs that track bitcoin derivatives. However, they were withdrawn since the SEC does not review filing for a fund where the underlying instruments are not yet available.
Launch of futures would definitely increase the chances of a bitcoin ETF.
Four sponsors have recently filed for blockchain technology ETFs. Blockchain is the technology behind bitcoin and other cryptocurrencies. Even skeptics of bitcoin believe in the massive potential of this technology.
Investors interested in bitcoin should be aware of the risks. Unlike real currencies, cryptocurrencies have no central bank backing. They are illiquid and trading is expensive.
Many central banks have warned investors about risks of investing in bitcoin. Some have taken action against cryptocurrency exchanges and initial coin offerings.
Further, there have been many instances of hackers stealing bitcoins.
To learn more, please watch the short video above.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.
Get it free >>