December 27, 2017
On Sunday the 10th of December, the Chicago Board Option Exchange (CBOE) made the news by launching the first Bitcoin futures contracts — XBT — on its exchange. The viability and stability of cryptocurrencies in general, with Bitcoin at the forefront, has been a hot topic of conversation recently. It may be that this blockchain development will go some way to settling the matter. Or not.
Since its inception in 2009, Bitcoin’s value has been increasingly up for debate, with some claiming it is only of use by criminals or anti-establishment revolutionaries, whereas others see it as a means to create a transparent and efficient global payment system, free from interference by third parties and governments. The price of a Bitcoin, whilst constantly in flux — and often dramatically so — has nevertheless shown a strong upward trend, even in the previous 12 months at time of writing, it has risen from around US$780 to approximately US$16750 — a more than 2000% increase. It is perhaps easy to see why some are heralding it as an amazing investment opportunity whilst others are calling it a bubble waiting to burst.
There have been numerous statements from bankers warning against the investment in, and use of, cryptocurrencies; although as cryptocurrencies are often seen as an alternative to banks it may be that their arguments are biased. Parallels are also being drawn with ‘Tulip Mania’ — the phenomenon in the 1600s that is regarded as the first recorded speculative bubble — despite the fact that the situation Bitcoin is in is not analogous to that of the 17th century event and a metaphorical argument is tenuous.
Despite the negative views held by some, Bitcoin and other cryptocurrencies continue to grow and are increasingly becoming a legitimate financial power as greater numbers of companies accept them as a form of payment and start-ups provide methods for using them in day-to-day life. Clearly adding to the legitimacy of Bitcoin, the provision of Bitcoin futures contracts seems to be another step towards the use of cryptocurrencies becoming commonplace, which points towards a continuous rise in price as the demand for the limited supply of Bitcoin grows.
A counter-argument to this sits in the volatility of the price of Bitcoin. As the value can fluctuate wildly, it is seen to be more useful as an investment tool rather than a payment method, leading to people to hoard Bitcoin and its usefulness to decrease. Many are of the opinion that for Bitcoin to realise its true value it must first gain a measure of stability and predictability.
With the launch of three Bitcoin futures contracts by CBOE this may have been provided. Potential investors now have the option to bet on the price of the cryptocurrency on the 1st of January, 1st of February and 1st of March, 2018. In providing these options, CBOE has opened up investing in Bitcoin to those who don’t own any of the cryptocurrency and provided a means to mitigate risk in trading Bitcoin. Ironically, although perhaps unsurprisingly, the launch of the Bitcoin futures contract precipitated a huge spike in the Bitcoin price. The sudden surge caused the trading of the XBT futures to be halted as the contract price rose past the 10% and 20% limits set, but since these initial pauses there have been no further interruptions to trading. It remains to be seen whether this marks a decrease in the volatility of Bitcoin in the long-term.
CBOE reported that initial interest was higher than expected, with the volume of traffic causing slower performance than usual on its website and warned of temporary unavailability although this ended up occurring only due to the trading pauses that were enforced. Initial results have pointed to the shortest contract — for the 1st of January — as having received the most attention, which may indicate the hesitancy of people to gamble on the long-term performance of the currency, even with the historical showing an overall exponential rise in price.
As the first company to offer Bitcoin futures contracts, CBOE is forging ahead in the trading of cryptocurrencies; however, it is not the only company seeking to provide financial services to this effect, with CME Group preparing to release its own Bitcoin futures contract on the 18th of December and Cantor Exchange, a Cantor Fitzgerald subsidiary, planning to offer Bitcoin binary options at the same time.
That the options now being provided, or about to be made available, have been allowed by US regulators should be seen as a positive sign. The US Securities and Exchange Commission made headlines earlier this year by being the first regulator to weigh in on Initial Coin Offerings (ICO)— a method of fundraising using cryptocurrencies. If regulators in the US are seen to approve cryptocurrency-related options, the likelihood of other countries following suit is increasingly likely, much as many did following the SEC’s ICO decision.
Many concerns people put forward surrounding cryptocurrencies are being addressed and the underlying blockchain technology is taking off in its own manner. With criminal activity being tracked, scalability being addressed, regulatory benefits becoming apparent and the efficiency it can offer compared to traditional financial options, it seems like cryptocurrencies will take off. If financial options such as the Bitcoin futures being offered by CBOE continue to be publicly approved by regulators, mass adoption of cryptocurrencies is more likely to take place, or to take place at a greater rate.
Speaking on the launch of Bitcoin futures, Sheila Warren, Head of the Blockchain project at the World Economic Forum’s Centre for the Fourth Industrial Revolution, remarked: “While continued volatility is expected, Bitcoin trading on the futures market is a significant step. We are closer to a world in which digital currency is considered a normal part of a healthy investment portfolio. It’s just a matter of time until we see a digital fiat currency, which will mean we are playing a new ballgame. Digital currency in some form or another is clearly here to stay.”
This article was originally written by Matthew Warner, Researcher at Blockpass IDN
Blockpass is a collaborative project between Infinity Blockchain Labs and Chain of Things.
Bitcoin and other cryptocurrencies may prove to be Trojan Horses of sorts for blockchain development. As they enter the mainstream, they bring with them trust, familiarity and experience with the underlying blockchainchain technology. This means individuals, industries and governments will be quicker to adopt blockchain products and services. Blockpass, whose researcher Matthew Warner wrote the above article, is one such product. Blockpass is a production ready Regtech platform for identity verification between humans, objects and devices. It offers shared regulatory and compliance services for and enables the development of new applications that rely on a trusted connection between human and device identities. As blockchain becomes widely adopted, thanks in part to the mainstream success of cryptocurrencies, Blockpass and other services will prove to be an essential part of the expanding ecosystem.
Infinity Blockchain Labs (IBL) is the leading blockchain R&D company with numerous labs aimed at creating solutions for different sectors and partners with the goal of promoting blockchain adoption. They aim to create products and services that meet the expanding needs of blockchain enthusiasts.
As a pioneer in the technology, IBL hopes to help blockchain development impact as many diverse fields and technologies as possible to nurture global development. To do so, IBL relies on a wide range of expert partners share blockchain development news. Blockpass as experts in the industry are great sources of the wisdom that will inform blockchain development growth. Through articles such as this one, we can inspire Vietnam’s regulators, developers and entrepreneurs to adopt the technology and fuel the country into becoming a global blockchain development hub.
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