The bitcoin bulls who’ve welcomed the CME Group’s plans to introduce bitcoin futures contracts before year-end as an easier way for institutional investors to invest in the sector might want to be more careful what they wish for.
The quarterly-ROI-obsessed fund managers who will trade these contracts share none of quasi-religious mindset of bitcoin HODLers. And now they have a tool, in the futures contracts themselves, with which to short the market.
If it makes sense to do so, they will gladly take actions that drive the price lower. Wall Street is pragmatic, self-interested and obsessed with its short-term bottom line. It doesn’t HODL.
To be sure, it’s not clear how much of an immediate impact futures trading will have on the spot market for bitcoin – the CME’s contracts will be cash-settled, which means that neither counterparty to a trade takes physical ownership of the underlying asset. Investors will merely treat the underlying bitcoin market as a reference.
But as the futures market gains liquidity, and as cross-market hedging strategies become more sophisticated, the futures price on the CME may well become a driver of spot market prices. With such an imbalance between the sizes of the institutional and retail markets, the tail could start wagging the dog.
Here’s the thing: This rite of passage is welcome. By lowering volatility, two-way institutional engagement will increase the impact that bitcoin can have on the world.
It’s an important step in fulfilling bitcoin's purpose. But it also means the moon might have to wait.
Source - Coindesk