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CME’s Bitcoin Futures Market ........Might Give Teeth to Bitcoin Bears


The planned CME futures is seen by analysts as one of the projects that will endear Bitcoin to many of its critics as they would have more options to invest in the digital currency. One of the reasons that long-only investors have succeeded in the Bitcoin market is that there is no effective way to short large amounts of Bitcoin. 

All that could change in a month's time if CME launches its Bitcoin futures. The launch of Bitcoin futures would provide bears with a means (Teeth) to short large quantities of Bitcoin; something which they cannot effectively do today.  

CME's announcement that it would launch Bitcoin futures in December 2017 provided a boost to Bitcoin's price. The expectation is that Bitcoin futures would lend legitimacy to the asset class and you could see institutional investors entering the Bitcoin market. If Bitcoin futures were approved by the CTFC, then it would also be difficult for the SEC to block Bitcoin ETFs as the underlying would be a regulated asset.

Today you cannot short Bitcoin. So there's only one way it can go. You either buy it or sell it to somebody else. So you create a two-sided market, I think it's always much more efficient.

Margin trading at exchanges -  While technically one can short Bitcoin today through margin trading at existing exchanges, the liquidity and volumes at these exchanges are not sufficient for large investors. Exchanges such as Bitfinex allow users to borrow digital tokens and sell them, subject to other users agreeing to lend the assets to the margin trader.

However, such exchanges are few and far between and most exchanges allow only regular buying and selling, which favours traditional long-only investors. Also, many exchanges, such as Bitfinex, don’t allow US citizens to margin trade on their platform. Regulated futures create a whole new narrative, since these trades are cash-settled and short sellers do not have to actually borrow Bitcoins.

Bitcoin futures may provide Bitcoin sceptics with a way to short Bitcoin, but that does not mean that it would be a successful trade strategy. Given Bitcoin's wide volatility and penchant for sudden bull runs, futures could easily turn into a bear trap instead of providing bears with teeth. Even Jamie Dimon, who has attacked Bitcoin as a fraud and a bubble, has said that he wouldn't short Bitcoin. 

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