Cryptocurrencies are capturing even more attention as we near the end of 2017. CME Group and Cboe are large, traditional Chicago-based exchanges that have announced their intent to start trading Bitcoin futures. This is exciting news for Bitcoin and for the cryptocurrency market as a whole, signaling a broader acceptance of distributed ledger technology (DLT).
Bitcoin was launched in 2009 and has grown dramatically, especially in the past year. There have been plenty of challenges as the marketplace became educated about the benefits of cryptocurrencies, and those benefits have translated from the theoretical to the practical. The ability to take advantage of blockchain technology and smart contracts attracted a wide array of small to medium enterprises seeking to gain security, lower costs, and level the playing field. Large financial institutions and governments have mostly avoided participation, as they are the recipients of fees associated with financial transactions and have an interest in maintaining control over these transactions.
Business Insider recently reported on the new development for DLTs, the establishment of futures markets for Bitcoin. In Bitcoin is skyrocketing because 2 of the biggest exchange groups in the world are launching bitcoin futures — here’s what that means, Frank Chaparro explains why this might be a big deal. Exchanges trading in futures is not new. Futures are simply an agreement between two parties to exchange a particular asset on a specified date in the future, at a predetermined price. As illustrated by Chaparro, oil that is trading at $50 right now could be sold at a future rate of $55. If the price of oil on that set date is actually $60, the profit on the transaction would be $5. By typically providing settlements in cash, these exchanges create a platform to invest in the future value of a wide variety of commodities, such as oil, agriculture, and even currencies. The introduction of cryptocurrencies into this mix is an exciting development.
The initial Bitcoin futures will be sold offering cash settlements only, which allows investors to participate in the marketplace without actually holding any cryptocurrencies. Chaparro believes this may have a stabilizing effect on the value of Bitcoin, and may also pique the interest of other traditional Wall Street investors.
Image: Chicago Exchange