Bitcoin has a lot going for it at the moment. On Wednesday the coin hit a new record high of $6,600 hours after CME group announced that it would open a futures market for the cryptocurrency. And now it just keeps on climbing!
CME is a financial market firm based in the United States. It operates the largest futures market in the world. On Tuesday, it said it will open a Bitcoin futures market because its clients have been asking for it. As soon as regulators okay the idea, it will be rolled out.
"We've been working with the regulator. They understand our application. And they understand our model very, very well," CME Group chairman and CEO, Terry Duffy said.
An exact date wasn't announced for the launch of this market but it's expected to open by the end of the year.
How will this Bitcoin futures market work?
Basically, a futures market revolves around futures contracts. Two parties agree on the price of a commodity (Bitcoin) for a certain date in the future and do business based on this agreed price. The buyer then pays upfront in cash. When that date arrives the Bitcoins are supplied to the buyer based on the price agreed in the past.
If Bitcoin's price goes up in value, the buyer makes some gains. If not, he or she loses.
This is the business model CME group will be operating when the futures market launches by the end of the year. However, CME said payouts will be settled at its Bitcoin Reference Rate (BRR), a Bitcoin price launched in November 2016 different from what obtains on exchanges. The price will be published daily at 4 p.m. London time.
Fresh money, new record high
This news was greeted with happiness all around the crypto world. Many see it as a positive sign for the growth of Bitcoin and crypto-currencies. The general belief is that it will usher in fresh money from institutional investors and make Bitcoin more valuable.
Here's what a popular Bitcoin trader and commentator, IamNomad, said about the development:
“For crypto kids confused on why CME [bitcoin futures launch by CME Group] is a big deal, this is how the ‘money on the sidelines’ you’ve heard about for years starts to enter. One big product on CME has more volume then (almost) any two bitcoin exchanges at any given time.”
So, investors reacted and in no time, Bitcoin hit a new high of $6,600, rising by almost 4% from the previous day. Recent reports that Bitcoin trading could resume in China also contributed to the rise but CME's announcement played a huge part.
Futures market to pave the way for the future
A futures market will encourage and facilitate speculations about Bitcoin, which will give a better and clearer perception of the currency. This could be a plus or be detrimental to Bitcoin in the long run. It will reflect the true perception of Bitcoin among investors and may make the market to come under the power of people who could influence it to their own gains.
Also, this development offers an avenue to buy Bitcoin at a cheaper price as CME's reference rate is always lower than what's on exchanges.
In addition to this, it is expected to quicken the global adoption of Bitcoin and blockchain technology. Crypto-currencies are still in an infantile stage and according to analysts, Bitcoin is still in its early days.