8:16 AM, November 30, 2023


| The European |

Any person who traded in Cryptocurrency market in the year 2018 can vividly share the bizarre ups and downs of the Crypto market. The total Crypto market capitalisation witnessed a drastic drop; from $824 billion (7 January 2018, source: Coinmarketcap.com) to less than $150 billion. Crypto analysts and traditional investment analysts have made a long list of factors responsible for this massive decline. However, there is a consensus that lack of institutional investment in Crypto market is the primary factor because of which the gains of the year 2017 could not find a strong support level in the year 2018.

In December 2017 Bitcoin Futures trading was launched on Chicago Board Options Exchange (CBOE) and Chicago Mercantile Exchange (CME). The distinct feature between Bitcoin Futures Contract of CBOE and CME is the ‘Lot Size’ of the Futures Contract. A CBOE Bitcoin Futures Contract represents ‘1 Bitcoin’ while a CME Bitcoin Futures Contract represents ‘5 Bitcoins’. The important thing to note here is that though the word ‘Bitcoin’ is present in the name of these Futures contracts the trades never take place (and are also not settled) in physical (itself) Bitcoin. All transactions are executed in Fiat (US Dollar). The trade volumes of these Futures Contracts have no relation with the trade volumes of physical (itself) Bitcoin traded on Crypto exchanges. The price of Bitcoin Futures Contract, however, is determined from the data fetched from select exchanges.

Throughout the year 2018 rumors were exchanged about ‘Physical Bitcoin Futures’. Debates raged on social media platforms like Reddit and market analysts also pitched ‘Physical Bitcoin Futures’ market. The US regulators remained apprehensive of adoption of Cryptocurrencies in the mainstream economy while Europe showed a progressive stance. Countries like Switzerland, Malta and Liechtenstein did not want to miss the train. These countries welcomed every opportunity in Crypto sector to benefit from future mainstream adoption of Crypto as an investment ‘asset’ class. Market analysts believe unless institutional investment does not enter the Physical Crypto market the existing bearish market mode will continue and will hamper the growth of the overall market.

The New Year (2019) has brought in a much-needed optimism for weary Crypto investors. It seems that finally their prayers have been answered. Industry peers are now moving towards launching ‘Physical Bitcoin Futures’. The most prominent amongst them is Bakkt. Bakkt is a new company created by the Intercontinental Exchange (ICE), the organisation that owns and operates the New York Stock Exchange (NYSE). A press release dated 3 August 2018 issued by ICE states,

“Bakkt is designed to enable consumers and institutions to seamlessly buy, sell, store and spend digital assets. Formed with the purpose of bringing trust, efficiency and commerce to digital assets, Bakkt seeks to develop open technology to connect existing market and merchant infrastructure to the Blockchain”.

In another press release (dated 20 November 2018) issued by ICE it is stated that the Bitcoin Futures Contracts available for trade on Bakkt platform will be “physically-settled daily futures contract for Bitcoin held in Bakkt Warehouse, and will be cleared by ICE Clear US, Inc. E”.

Full contract specifications can be read from ICE website. The tentative launch of the Bakkt trading platform is 24 January 2019.

The good news for the Crypto community has just started. Eris Exchange, LLC (a futures exchange which offers the United States dollar-denominated exchange interest rate swap future contract trading services) and CoinFLEX (a venture owned by a consortium including famed early crypto advocate Roger Ver and Trading Technologies International Inc., which develops trading software for brokers and money managers) are also geared-up to enter the lucrative Bitcoin ‘derivatives’ market.

CoinFLEX has its roots in the United Kingdom but its business will be based in Hong Kong. Mark Lamb (CEO), who is also a co-founder of Coinfloor (a British Crypto exchange) in a recent (7 January 2019) interview given to Bloomberg talked about CoinFLEX’s business strategy, market dynamics and opportunities in Bitcoin ‘derivatives’ market. Important extracts from the interview are summarized below.

  • CoinFLEX will offer Futures contracts for Bitcoin, Bitcoin Cash and Ethereum.
  • Leverage offered will be up to 20 times of the invested capital.
  • CoinFLEX will be incorporated in Seychelles. Lamb explained that Crypto being a globally traded asset class cannot be confined to the laws of any single territory which is why CoinFLEX decided to register the business as an off-shore entity.

Crypto 2019 – Bull or Bear?

Every asset class has its own investment dynamics. Take an example of the Equity Markets. Though the investors were anticipating a correction of DOW & NASDAQ the quantum of correction far exceeded the estimates of market analysts. Similarly, no one could have thought that Apple, a tech behemoth, will fall from grace and wipe-off billions of dollars from the US Equity Market.

Crypto is relatively a nascent ‘asset’ class. It will take time for traditional investors to understand its market, demand, supply and the underlying Blockchain technology. However, it is encouraging to know that recognized names (like Fidelity Investments) in the traditional investment management services industry have jumped on board the Crypto market and have dedicated resources (infrastructure, tech and manpower) to invest and trade in Crypto.

It can be safely assumed that entry of players like Bakkt and the launch of Physical Bitcoin Futures will significantly boost (Physical) Crypto trade volumes and therefore will increase the demand for digital assets. Crypto pundits anticipate that the year 2019 will make room for bulls and will push back the bears from the Crypto landscape.

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