Danger ahead for BitCoin?!
I guess most of us have heard that CME Group is starting BitCoin futures market in December. What you might not have heard is that Nasdaq is now considering to launch BitCoin futures in the beginning of 2018:
BitCoin Futures on Nasdaq
But why am I worried?!
Futures market sound like a good thing. It will bring in money to BitCoin and the market will explode, right?! That is one possibility but it is not the only one. The problem with futures markets is that you don't have to own the commodity you want to trade on. Together with leverage involved (10x, 100x, 1000x) you
could spend money equivalent for 1 BitCoin to buy/sell 1000 BitCoins. Lets look to the possibilities:
- Investors will use futures to buy BitCOin at a leverage
- Investors will use futures to short BitCoin
Buying BitCoin with futures
BitCoin is
comparatively a small market and does not have much order depth. There is not that many people selling so if an investor wanted to go long on BitCoin the price would quickly skyrocket and it would cost a lot to aquire any amount of BitCoin.
- It will be hard to get BitCoin at a high leverage since order depth will be quickly eaten up
Shorting BitCoin with futures
The same applies here that the order depth isn't that big for BitCoin and with futures you don't have to own any BitCoin to actually sell them. You can sell as many as you want and you can
empty the order book down to ZERO. Becasue the lower you get the less BitCoin costs.
- Using futures it will be possible for external investors to empty the order book and dump BitCoin to zero in value by leveraging their investments.
Why would anyone do this?!
The question would rather be why not?! Currently banks and institutions not involved with BitCoin are loosing money since private investors are going over to the crypto world and seeing great returns. But if they start to crash the market that money is going to start to flood back into the *safe investments *again and they will be making more money.
- What are your views on the futures market?
- How can we prepare for this so that we (the personal investors) don't loose our well earned investments?
