By now, everyone knows about the Bitcoin, the king of cryptocurrencies. It is making headlines again as of lately and grabbing mainstream attention. So, what happened?
Well, Bitcoin has entered the world’s largest futures exchange and what a way it was to make a debut. It all started with CBME’s Bitcoin futures launch on the 10th December. Soon, the Chicago Mercantile Exchange (CME) has started to offer Bitcoin derivatives trading and the surge in price quickly followed.
Brokerage firms have taken notice and expressed intention to allow cryptocurrency trading. And rest assured that this is just the beginning.
Peaks and valleys
The value of Bitcoin has started to fluctuate widely again, after a period of relative stability. It has broken the historic barrier of $20,000, but then slipped to $1,400 in a matter of hours. The price then went up again and reached a level, which is 2,250% increase compared to the same period last year.
How is this all even possible? Well, the Bitcoin market exists online and is out of the regulatory reach of any institution or state. Marketplaces like BitMex have been around for some time and the trade that takes place there is highly unregulated.
However, this is not just some digital Wild West where outlaws are at large. A record of every transaction is stored in a huge public ledger called the blockchain. What is more, each and every transaction is anonymous and people can obtain Bitcoin via mining it. The problem, though, is that the transactions are irreversible, which attracts many cybercriminals.
Leaps and bounds
To overcome this hurdle, Bitcoin has made headways in the world of futures trading. Namely, the Bitcoin itself remains unregulated, but now it can be traded on regular exchanges, via financial method futures. In other words, it is possible to form an agreement to sell or buy this cryptocurrency in a regulated environment and for a specific price.
This price does not have to reflect the real market price of Bitcoin. To be more precise, the price certainly plays a role and there are also a minimum and maximum price ranges on each exchange. But, an investor or seller also bets on what the price of the Bitcoin will be in the future. Therefore, Bitcoin futures work much the same as futures tied to traditional financial assets.
What does this mean for those who undertake Bitcoin transactions?
In a nutshell, it is now easier to buy, trade, and sell Bitcoins than ever before. This will surely open up the market for a much wider investor base. People will also be able to speculate on the price, even in areas or countries where trading this cryptocurrency is otherwise banned.
After all, futures can be used as a highly-effective risk-management tool, which is also their purpose in conventional portfolios.
A murky future
At the same time, the spectacular rise has several implications. It is precisely the unprecedented amount of attention and interest that has pushed the price up and caused the spike in value. These are, however, short-term implications and a long-term impact on the price is hard to predict.
For now, various financial experts are advising against any investments Bitcoin and disregard it as risky business at best. Politicians and officials have also voiced their concerns. You could say that the fears that the huge Bitcoin bubble could burst at any moment are well-grounded.
Of course, in the wake of such as rollercoaster, the users themselves are also concerned about using Bitcoins. Services like Steam have already announced new policies that will prevent people from using their digital currency.
Finally, the volatility of Bitcoin has prompted people to look for alternatives. It has facilitated the gains of Ethereum, Ripple, and Litecoin, and other altcoins. Once the interest of investors reaches a certain threshold, they could follow suit and also become tradable as futures.
A gold mine or a bottomless pit?
As you may know, Bitcoin is a notoriously volatile cryptocurrency and that is old news. It has been used for now in the digital realm, but what is new are the recent mind-boggling ups and downs that have launched into the limelight of media attention.
This month, upon entering exchanges, it has finally taken centre stage. People will probably look back at this moment as a decisive milestone for the evolution of crytocurrencies. Their road might have many twists and turns, though. While some people could strike gold others may lose all their investment money.
So, are we on a verge of a cyber gold rush? Well, Bitcoin bubble warnings are getting louder and louder. As we have no crystal ball, only time will tell what the future holds for Bitcoin and everyone involved.
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