Bitcoin owners are uncertain about what will happen to Bitcoin when it goes live on the futures market. Apparently, just as the Stock Market does not like uncertainty, the cyber currency market is jittery about uncertainty too.
What the heck is the Future Market?
Lets take a coin which is currently trading at $.50, you think that is will go up to $1.00 in the next 8 weeks.
Another investor will offer you the chance to commit to paying $.75 for the coin two months’ form now. You say yes or accept the offer, you just “bought” a futures contract. If you are right, you will be paying $.75 for something that’s worth $1.00. If you are wrong, and the price is only $.60, then you will paying more than it’s worth in the market, and you will not be putting extra olives in your evening martini.
Alternatively, if you think that the coins price is going to go down, you can “sell” a futures contract: you commit to delivering a coin for a set price, say $.75 tow months from now and the price is $.80. You have to deliver the coin at $.80 to the holder of the contract for $.75. No extra olives for you.
However If you right and the price is only $.60 then, you’ve made a profit.
If the aforementioned coin contract were on a cash settlement basis and the market price was $1.00 at the end of two months (as you had predicted), instead of a coin, you would receive $.25 (the difference between the $1.00 market price and the $.75 that you committed to pay).
How will the Futures Markets handle all the Wallets and Vaults ?
Short answer: They won’t.
Because these market settle in cash, not in actual coin, there is no need to set up a wallet or vault and the money exchanged does no go into the coin, but is separate transaction. So it should now affect the price of the coin. They trade Pork Belly, Oranges, Cattle etc and not one Orange or Pig is ever touched.
So remember: the money will not be pouring into the coin’s market. It will be buying synthetic derivatives that don’t directly impact the coin at all.
Futures contracts do not require ownership of actual goods, not even on contract maturity.
Conspiracy Theory
There will be companies and institutions that embrace block chain technology and others that think they have much to lose and will resist. Banks Governments Financial Institutions that are so tied up in government regulation that seeing the Block Chain with it’s unregulated, border less, decentralized system feel threatened.
Could the price of a coin be driven up by large banks in the thousands of percent, only to have it tumble thousands of percent to “wipeout” the market? Teaching a lesson to those who dared to do something different? Only time will tell. Remember that Blockchain technology has the potential to change financial institutions and governments will see something unregulated and decide to “fix” it. If they “fix” it we will be signing 5 or 6 signatures of a 30 page form just to open an account.
On the other hand, the acceptance of Bitcoin for example to mainstream markets, gives a signal of acceptance as a viable and legitimate form of payment, which can open a whole new chapter in blockchain investing.
Bit Coin Bubble Warning!
Just like the dot com bubble, all bubbles will burst. The final and most important signal that the bubble is about to break is total acceptance. When your parents start talking about Bitcoin, or you are in line at a movie and the people behind you are talking about “getting in” to Bitcoin, that is the signal that complete acceptance is about to burst the bubble.