Why the ability to bet on Bitcoin going bust could help stabilize the market
As is always the case in markets and investment, not everyone is looking to go with the grain. There is an emerging bear market looking to bet on a Bitcoin bust in the hopes of shorting the market, but this could be a positive move for the digital currency.
There are alternatives to simply buying into Bitcoin, such as banking on derivatives, and alternatives in order to short the market, but soon people will be able to bank on it all going bust.
Bitcoin futures
While nothing is official yet, there is talk coming out of places like The Chicago Board Options Exchange, the biggest US options exchange, which said it planned to offer ‘Bitcoin futures’ later this year or early next year.
Additionally, LedgerX received CFTC approval to clear derivatives which essentially leaves the platform open to offer options on Bitcoin and other cryptocurrencies.
Other alternatives
Derivatives are currently not an option but are on the edge of becoming a chance for investors to both bet on the leading cryptocurrency climbing higher or sagging lower.
There are still alternatives, such as the Bitcoin Investment trust, a US-listed fund that owns over 170,000 Bitcoins. There is also a more roundabout alternative in Nvidia, a chipmaker and famous graphics card manufacturer that is seeing a boom in its value thanks to cryptocurrency mining.
Two-way price discovery
With Bitcoin’s trading thus far being overwhelmingly one-way traffic, there are those that believe a clean shorting option on cryptocurrencies will help in stabilizing the market.
Alistair Milne, a portfolio manager at the Altana Digital Currency Fund, a cryptocurrency-focused hedge fund, has said:
“Ultimately the more liquidity there is, the more volatility will fall, reducing costs all round.”
This, in essence, will help two-way price discovery and improve the market overall, according to Milne.
However, not all share his beliefs as Francisco Blanch, a well-known analyst at Bank of America Merrill Lynch, who describes the cryptomarket as the ‘Wild West’ has said:
“Is it truly digital gold, or a highly inflated asset? We don’t know now, but we will soon. When people realize the potential scale of the shorts that will build up, they will probably get nervous.”
