Bitcoin Surges on CME News

Bitcoin’s incredible run continued overnight, smashing through the US$6600 mark ostensibly on the news that the world’s biggest futures exchange, CME Group, announced it will launch a Bitcoin contract by the end of the year.  From Bloomberg:

“The move offers the world’s largest cryptocurrency an important official recognition, and a chance to go mainstream. With the launch of futures contracts, more institutional investors will be able to invest in bitcoin, having been previously prevented from doing so for regulatory reasons.

Liquidity in bitcoin trading is also expected to increase with the move and creation of bitcoin futures should make it easier to create an exchange-traded fund based on the digital asset.”

There is potentially added market demand on the back of another hard fork scheduled for 16 November.  The so called SegWit2x software update, aiming to make Bitcoin faster to use, could see Bitcoin split in two again creating a new currency and another gift to existing Bitcoin holders as was the case with Bitcoin Cash and last week’s Bitcoin Gold.  The splits see a one for one issue to Bitcoin holders (essentially a dividend)  and whilst on both previous occasions investors thought Bitcoin would correct after the split, it barely caused a blip and Bitcoin continued to trade higher afterwards.

Irrespective let’s go back to Bloomberg’s coverage of the news and talk to the following excerpt:

“Second, bitcoin exchanges have been plagued by hacks. The CME's bitcoin contract will trade and settle, somewhat ironically, in dollars. The virtue of that is traders can bet on the price of bitcoin without the fear of the bitcoins in their accounts being hacked. And the CME trading venue removes counterparty risk as well. That should bring in more traders who are skeptical of the currency and could keep any bubble in check.

There is a risk, of course, that the opposite could happen. If bullish bitcoin investors flood into the CME's new contracts and push their price up, that could further inflate the value of actual bitcoins. Derivatives have been known to add air to bubbles. See the housing market. The price of bitcoin surged on the CME news.”

We write occasionally of our frustration at people introducing counterparty risk to monetary assets with no inherent counterparty risk (most recently here).  When you look at the reasons raised for the attractiveness of using futures over direct bitcoin investment it is all about hacking and (ironically but in a different context) counterparty risk.  And that is actually a fair call when you don’t use our service. 

We remove ALL that risk.  With Ainslie you:

• Deal human to human with a 43 year old bullion company
• Immediate access to high value purchases
• Lock in the price immediately (during business hours)
• Pay on an invoice showing exactly what you are buying and for how much.
• Get an offline ‘cold’ wallet with absolutely no digital footprint and no hacking risk.  We also sell Ledger Nano S hardware wallets as an alternative ‘cold’ wallet option.

Since Ainslie started selling Bitcoin in August it has more than doubled in price and is now up 550% for the year to date.  The CME announcement and talk of Goldman Sachs doing something similar illustrate again this is no fly by night monetary asset.  However, as we wrote on Tuesday, it is most definitely one still in it’s infancy of broader market demand, and that demand in the context of limited supply.  You do the math.