With the rollout of the first Bitcoin futures, Bitcoin critics and disciples alike hold their breath. Doomsayers warned that the new futures will subdue Bitcoin’s price swings — or even dramatically end a perceived “bubble” — while industry insiders remain adamant that Bitcoin’s rally is just getting started.
After a day or two of market indecision ahead of CBOE’s launch last Sunday, we got a taste of Bitcoin’s fate: it proceeded to defy critics and set more dramatic records. The sky didn’t fall.
Enticing traders with free trades through the end of December, the CBOE website crashed under the stampede of investors. Chicago Mercantile Exchange — America’s largest futures exchange — followed with Bitcoin futures launching on the evening of Dec. 18., 2017.
Meanwhile, the leading digital currency for a moment reached fresh record highs of $20,000 and beyond.
Some speculated that continued growing pains for Bitcoin’s infrastructure — and exchanges seeing occasional outages — could make the futures impractical. Yet if the futures exchange couldn’t handle the demand, then the criticism is hypocritical, at best. The blockchain itself has never crashed. Third parties running legacy software are the ones experiencing crashes. Bitcoin and the blockchain behind it are making existing institutions more secure, or outright obsolete.
no matter what government tries to do, however, this is an economic emancipation
Too few bother to ask the question of how, exactly, futures lacking ties to the actual commodity are supposed to influence the price. Consider that the value of daily trading of CBOE’s Bitcoin futures hover around $60 million, against $8.5 billion worth of Bitcoin trading volume in the same day last week.
Note that CBOE and CME futures only payout in dollars, but few who understand crypto or use it want the dollars. Investors will want delivery, and “forks” are one big reason.
Those who misunderstand Bitcoin sometimes argue that there’s no underlying return. “Bonds at least have a coupon,” they say. The reality is, Bitcoin pays assured dividends as “forks” occur. When the protocols evolve, new coins — like Bitcoin Cash and Bitcoin Gold — branch off and create parallel currencies. Anyone holding Bitcoin during a fork is awarded an equal quantity of the new coin. These new coins have consistently-increasing value, just like Bitcoin.
The markets around Bitcoin will probably expand to include Exchange Traded Funds. The Securities and Exchange Commission, however, appears keen on locking people out of the crypto sector by not approving an ETF. With exchange-crashing popular demand from the trading floors, it won’t take long before regulators cave and allow ETFs as another way to cash in on Bitcoin.
This brings us to regulatory impact on Bitcoin’s outlook. For people who want to participate in investments scrutinized and managed by government, the market will always provide them with those opportunities. The nature of cryptocurrency is that no matter what government tries to do, however, this is an economic emancipation of the people and no power on earth can stop it.
When the Gutenberg printing press or computer were first invented, only a few large cities had them. Future generations saw home printers and now 3D printers — so authority can no longer effectively regulate printed content or even gun manufacturing. Banking is not immune to this pattern of evolution, as an individual’s economic power is increasingly in her own pocket.
the range of utility will expand as the protocols and network adapt
In the meantime, the pundits and overnight cryptocurrency experts (who never made a right call before) predicting doom-and-gloom for Bitcoin will repeatedly be proven wrong.
Still, challenges remain.
The market may hesitate with the fact that although Bitcoin has unrivaled network infrastructure, it hasn’t expanded enough to process transactions as affordably or quickly, and backlogs at overwhelmed exchanges present a barrier for entry for hundreds of thousands of would-be first-time users. Partly addressing this issue, users can download wallets with the ability to manually toggle the network fee higher or lower, adjusting their place in the line of pending transactions.
So, while it’s true that you won’t be buying a coffee with Bitcoin for the time being, the range of utility will expand as the protocols and network adapt.
Until then, this could mean Bitcoin’s continual rise faces some headwind as cash flows to competing coins, but these coins would face even greater difficulty meeting a surge of demand and are not true alternatives. Bitcoin also has an advantage as the dominant cryptocurrency for accessing this altcoin market.
With each passing day in 2018, we will see breakthroughs in the usability and public understanding of Bitcoin, taking it — and the myriad applications of Blockchain — far beyond their current reach.
Nick Spanos is an early pioneer in the cryptocurrency and blockchain space, and founded Bitcoin Center NYC, Blocktech Corp, and VoteWatcher. He is also cofounder of Zap.org, a marketplace for real-world data feeds to integrate with smart contracts.