We asked traders for their opinion on the launch of bitcoin futures

November 9, 2017 11:48 AM
Great Bitcoin questions from traders.

Great Bitcoin questions from traders.

CME Group recently announced that they plan to list futures on bitcoin with a Q4 launched target. Cboe Global Markets had already announced plans to launch bitcoin futures as early as Q4, and several smaller exchanges have submitted plans for cryptocurrency derivatives. 

So, we asked traders, will there be listed bitcoin futures in 2017? Will it trade? Will one exchange win the liquidity battle for bitcoin futures or will it trade on multiple exchanges? 

Here's what they had to say...

Al Brooks @AlBrooksPA

Whenever there is something new to me and I want to understand it, and an expert in that new area cannot explain the basic concept clearly in one sentence, I immediately question the survivability of concept. A lightbulb is a glass ball that gives off light. A computer is a machine that does the fast math and lets me write papers that are easy to correct. A cell phone is a small box that lets me talk to people far away. Bitcoin is a cryptocurrency that uses block chains. What?!! That is the fundamental problem with Bitcoin. 

It is too hard to explain, and therefore most people will avoid it unless the government regulates it and gives people guarantees. Even a lot of traders will not trade it because they want the added security that comes from regulation. exchange-traded funds (ETFs) ETFs and futures contracts trade on exchanges and are therefore regulated. They, therefore, have the potential to attract more traders. GBTC is the ETF for Bitcoin, but no one is trading it. 

Will traders trade Bitcoin futures? I might, but I want to wait until I see lots of volumes all day long. If it will be a currency, the way its advocates claim, let’s see if it gets the volume of currency futures. If it does, traders will trade it. However, I am not eager to trade it. I will consider trading it after I see the consistent volume. Even then, I might trade the ETF versions instead, but only if they get volume.

Al Brooks, M.D., is the author of the Brooks Trading Course and several books on Price action. 

Rod David

The underlying Bitcoin is traded by multiple "exchanges" currently, so can't we assume there's enough liquidity for both CBOE and CME to launch active derivatives? I certainly hope so. I've found Bitcoin price action to be consistently responsive to patterns and to Fibonacci measurements. That's perhaps the most significant recent validation of technical analysis and charting as being universally applicable, especially when considering Bitcoin's diverse global participation. I would expect Bitcoin derivatives to attract new participants into the futures markets and expose them to many other opportunities. I hope the year doesn't end without either CBOE or CME having launched a product. Both players are very competent, so missing their timetable would only raise the question of whether it's impossible.

Rod David develops analytical techniques that are designed to efficiently identify targets and turning points for any liquid stock or market in any time frame. He primarily analyzes S&Ps, generating several round-turn candidates daily. Rod publishes "Trading Plan" and more each session on the blog here.

Phil Flynn @EnergyPhilFlynn

It will trade this year. The CME will be the main Bitcoinsutures index exchange. The CME bring the credibility and the panache and others will be late to the party.

Phil Flynn is an energy market analyst at The PRICE Futures Group and a Fox Business Network contributor. He provides investors, traders, and institutions with up-to-the-minute insight into global petroleum, gas, and energy markets.

Dan Gramza 

Will there be listed bitcoin futures in 2017?

Yes. The race is on between the CME Group and the Cboe Global Markets Inc. Barring any regulatory issues, I would be very surprised if a bitcoin futures contract was not listed by the end of 2017. Because of all of the media attention, being first to the market is critical. Usually, whatever product becomes first to market will become the benchmark that other products that follow will be compared against.  In addition, if the first to market can create significant volume, it will be difficult for the next competitor to move that order flow to its exchange and product.

Will it trade?
Institutional investors restricted to exchange-listed products, money managers, and private traders that have been monitoring the skyrocket returns of the bitcoin market will now have a way to participate in this market with the comfort of a product listed on an exchange and the protection of the exchange clearinghouse. The question is, will the institutional order flow begin to trade the bitcoin futures? It would be difficult to have a successful product without the institutional order flow support.

The creation of bitcoin futures also creates the possibility of exchange-traded funds (ETFs). ETFs would provide another mechanism for the private trader to participate in this market and institutional traders that are barred from investing in the options and futures bitcoin markets.

The attractiveness of the exchange-listed products is that it provides the exposure to the bitcoin price movement and trade management strategies without having to own the bitcoin itself. Exchange-listed bitcoin products also allow the ability to short the bitcoin price movement which you cannot do in the cash bitcoin market.

The challenge for a bitcoin futures product will be for it to maintain its relevancy as the bitcoin itself morphs into other products and to also deal with the potential government, central bank, political actions and hacking that could be detrimental to the trading of bitcoin in the cash bitcoin market.

Will one exchange win the liquidity battle for bitcoin futures or will it trade on multiple exchanges?
At the beginning of the listed bitcoin listed marketplace, having more than one exchange listing products would not be surprising and expected as exchanges search for the next major trading volume creating the product. Unless the bitcoin futures products are distinctive in their features and provide unique market exposure and returns, it is hard to imagine similar bitcoin futures products that will survive on multiple exchanges. Sooner or later one exchange will have the dominant share of trading volume.  

It is also important to attract international participation. The key to international participation will be the exchange that provides basically 24 hours of trading to attract order flow in other time zones.

Dan Gramza is President of Gramza Capital Management Inc. and DMG Advisors, LLC.  He provides daily market updates from around the globe on subjects ranging from the Nasdaq and currencies to crude oil and grains at dangramza.com. 

To see other questions answered by our experts click here  

About the Author

Tamarah Webb is the associate editor for Modern Trader magazine and Futuresmag.com. She was born in Hawaii and has moved numerous times being privileged to live in places around the world through the military. Tamarah is a recent journalism alumna of Columbia College Chicago where she minored in cultural studies.