With the Chicago Board Options Exchange (CBOE) and CME Group launches of bitcoin futures and the planned 2018 bitcoin futures launch from Nasdaq, even more eyes are now on the ubiquitous cryptocurrency, as investors, regulators and water-cooler conversationalists all monitor the market’s continuing reaction.
While it is not true that bitcoin and other cryptocurrencies are totally unregulated, they do exist in an underdeveloped legal environment.
Consequently, transactions in cryptocurrencies, and often their prices, march to the beat of a drum that no one controls. Many believe that regulated futures trading, through which investors can speculate on the future price of an asset, including betting that the price will decrease, will tame bitcoin and move it away from its “Wild West” roots toward a more mature existence. Then, the thinking goes, bitcoin will become “safer” and more stable.
However, the key to safety is not just the proliferation of investment options, but also the knowledge that hopefully accompanies it. There exist well over 1,000 cryptocurrencies, each with its own unique computer code and purpose. Volumes have been written about the blockchain technology underlying bitcoin, and many other cryptocurrencies put their own twists on that technology, from faster transaction confirmation to larger capacities to different functions altogether.
Broader exposure to not only the price fluctuations of these cryptocurrencies, but, ideally, to the ideas behind them, facilitated by higher visibility via futures, regulatory development, better stability and functioning of exchanges like Coinbase, and increasing media coverage, can lead not only to a larger market, but also a smarter market, if we choose to let it.
Because cryptocurrencies are a new and untested asset class, such knowledge is crucial to their viability, as understanding of the assets themselves is key to realizing their long-term potential upside and use cases (not just short-term return-on-investment) and navigating their numerous potential risks.
Those that drive the cryptocurrency investment market, and the broader blockchain and cryptocurrency economy, forward will be those that engage with it and seek an understanding of its underpinnings, not only by investing, but by understanding the assets into which they are investing. This may help not only to facilitate intelligent investment but also to enhance these new technologies, if they are appropriately vetted and ultimately funded by the increasing number of players in the cryptocurrency space.
The Wild West has always presented danger. If the market is able to leave some of that danger behind and move deeper into the cryptocurrency space, a thoughtful and well-informed approach will be crucial.