The world’s largest derivatives exchange operator CME Group Inc gave Bitcoin another boost this week when it announced that it plans to launch a futures contract based on the digital currency. Futures are used by traders and investors to bet on the future price of a commodity, such as gold or oil, will be higher or lower than it is presently. Long investors who think the price will increase can match their bets against short traders who expect the price to fall.
A major player in futures coming on board is a big step towards legitimizing crypto currencies and opening them up to the masses. A futures based contract for Bitcoin will enable Wall Street banks and trading companies to cover themselves against the volatile swings in the crypto markets. It also makes trading Bitcoin much easier for retail investors who may not have the technical knowledge to open and operate crypto wallets.
A daily updated price in USD for Bitcoin will be set using the CME CF Bitcoin Reference Rate (BRR). This will be taken from some of the leading exchanges based in the US. CME are in a race at the moment with rival group CBOE Holdings which are also competing to become the first marketplace for crypto currency futures. CME President Bryan Durkin has made a u-turn on comments he made to Bloomberg in September showing reluctance towards Bitcoin.
Bitcoin has been a dividing factor among the Wall Street heavyweights. On one side are technology firms embracing blockchain innovation and new technology and on the other are the likes of JP Morgan boss Jamie Dimon that will publically call it a fraud then secretly buy up on the dip that his comments caused.
An official US futures contract would help to garner more institutional support by alleviating some of the concerns over the massive volatility in crypto markets. As expected prices crept higher after the announcement and Bitcoin broke another record high of $6400. Increasing demand has helped to change the approach of investment leaders who are now beginning to accept that Bitcoin and its siblings are here to stay.
If the move brings Bitcoin and cryptos in general to a wider audience it will act to solidify their position as legitimate investments. This in turn will increase general awareness and bring crypto currencies into the mainstream where, as a new technology and method of doing business with smart contracts, they surely belong.