Bitcoin Prices: Will They Crash Due to Futures?

Posted On December 8, 2017 2:05 pm

The Chicago Board Options Exchange, the largest options exchange in the US, has announced that it will start offering Bitcoin futures. The trading will commence on Dec. 10 with the ticker “XBT”. CBOE Bitcoin futures will be followed by futures by CME, which has announced to start Bitcoin trades on Dec. 18. NASDAQ also plans to start Bitcoin trading in the first half of 2018. This means that the SEC will lose grounds to deny the approval of Bitcoin ETFs. CBOE head has said that he will re-apply for the approval of Bitcoin ETF. But unlike the bullish sentiment, hedge funds are preparing to bet against Bitcoin prices using these soon-to-be-launched trading futures.

A recent report published by Bloomberg says that the launch of Bitcoin trading futures will make it easier to short Bitcoin. Hedge funds are seeing Bitcoin futures as an opportunity to make their bearish bets. Without instruments, it is difficult to make short bets on assets. Analysts also think that Bitcoin futures will put a cap on the price of Bitcoin, as futures give market manipulators and big investors a chance to control the market dynamics to some extent.

Lou Kerner, an expert at San Francisco-based venture capital firm Flight, thinks that the Bitcoin market is the biggest shorting opportunity ever. Bloomberg’s report also quotes Michael Moro, the CEO of the New York-based financial services firm Genesis Global Trading, which has lent over $20 million to investors to help them bet against Bitcoin. Moro thinks that without trading instruments, it was hard to short Bitcoin.  He thinks that options exchanges like CME have opened up new “frontiers”.

How Hedge Funds Could Bring Down Bitcoin

Hedge funds are not overly enthusiastic about Bitcoin. They are waiting for Bitcoin prices to crash. And certainly sooner or later Bitcoin prices will plummet, albeit temporarily. Very few hedge fund managers and famous investors are bullish on Bitcoin. One notable exception in the hedge fund world is Michael Novogratz, who has consistently said that Bitcoin will keep soaring. Recently, Novogratz said that Bitcoin price will cross $40,000.

But famous investors  like Warren Buffett and Jack Bogle, who see no value in Bitcoin, can invest huge amounts of money to bet against the cryptocurrency. Investors will get a chance to short Bitcoin easily and regularly. This will induce a massive volatility in the price of Bitcoin.

The interest of hedge funds in Bitcoin is swiftly increasing. According to a latest report by Autonomous Next, over 124 hedge funds have invested about $2.3 billion in cryptocurrencies. This shows that Bitcoin now has the attention of the hedge fund industry. But this attention could become a negative factor if these funds turn bearish on the cryptocurrency.

 Related: 5 Reason IBM is a Great Buy for 2018

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