On a day when the cryptocurrency market has shed $30 billion with no clear and obvious catalyst, people are still asking why Bitcoin has not become as normal as any other financial vehcial or asset in regards to mainstream investment.
Of course, there are a lot of answers to why Bitcoin has not reached the tipping point of mainstream adoption, but one key term that often comes up is volatility. Bitcoin’s volatility is its double-edged sword, the reason it became what it has, and the reason it stays what it is.
If it was not for Bitcoin’s famed volatility, it would never have made it to the mainstream media; with stories of overnight millionaires who simply left their computer running with mining software on back in 2012. Those stories piqued the interest of everyday investors, and a bubble quickly formed.
As Bitcoin smashed through the $1,000 barriers, climbing its way to $20,000, people were in awe of the incredible volatility – but only because it was going in their favour. That quickly changed as people saw their hastily invested funds deplete in a blink of an eye, and without much reasoning again.
Volatility is a necessary evil for Bitcoin, but it may be coming to an end, and it may be that Wall Street of all places, is the driver to kill it off. Traditional investors are not as foolhardy and risk-attracted and thus would rather use Bitcoin in smaller doses.
This has led to the creation of derivative products which put Bitcoin far more on traditional investors’ terms. Futures contracts are starting to find their feet with institutional investors, especially now with the latest offering from Bakkt.
As is the case with derivative products for other asset classes, these products allow Bitcoin holders to lock in Bitcoin prices, shifting the risk of market fluctuation to other parties.
Wayne Chen, the CEO of Interlapse Technologies, believes that this is a positive development for Bitcoin. “The launch of a Bitcoin futures contract through ICE is a significant advancement for Bitcoin futures trading,” he says. “Bitcoin is deemed as a commodity by regulators and adding it into a futures contract is the right move.”
It does appear to be the future era for Bitcoin is getting into full swing. There has been more than enough to suggest that these contracts are in high demand, and that traditional investors appreciated the added security they bring. They are also a sign of a maturing market.
The next step of course would be for the launch of Bitcoin ETFs, however, this appears to still be a long way off.