During a Media Interview On October 31, Chicago Mercantile Exchange (“CME”) Chairman Terry Duffy stated that CME was planning to offer trade in Bitcoin Futures pending regulatory approval. This news sparked a knee-jerk spurt in Bitcoin prices, pushing the cryptocurrency well past the USD 6,000 mark.
While the dust is sure to settle as it often does after such a news-based movement, this event is of tremendous significance for the market in the long term.
For many investors, a key reason to avoid cryptocurrencies was that the market is “not mature”. Indeed, most of the platforms for trading Bitcoin are nowhere near “mainstream” asset trading platforms in terms of stability, compliance, and reliability. This is certain to change soon. With the CME Group getting involved, it is likely that exchanges such as Poloniex, Kraken, and Bitfinex will be targeted for acquisition by financial institutions seeking to add cryptocurrency platforms to their portfolios. Companies like DCorp – an ICO-funded venture capital fund that is building a cryptocurrency derivatives platform; and Open ANX – an aspiring crypto-fiat bridge, are likely to benefit from interfaces with the fiat system. These platforms will mature rapidly, and will race to comply with accepted KYC/AML and Cybersecurity standards.
I expect a substantial impact on Coin Prices. Cryptocurrencies have thus far been a fertile hunting ground for bold traders – incredible fortunes have been made by people playing volatility – where asset prices swing by 20-30 per cent in response to news. With large players like the CME getting involved, their billion-dollar supercomputers (“algos”) will play against each other to capitalize on even minor moves, making massive swings a thing of the past. Along with the algos, these players also bring liquidity, which will further decrease volatility. The biggest impact is likely to be on Bitcoin, which for most, is the US Dollar of the Cryptocurrency world. Across exchanges, Bitcoin is most common currency that Cryptocurrency pairs are quoted in. Further, by virtue of the finite supply built into its code, Bitcoin prices are likely to rise further as the new players build up positions.
Ether will see a substantial impact too, as the ERC20 standard pioneered by Ethereum improves fungibility between tokens. Furthermore, the vast majority of tokens in circulation today are ERC20 compatible, making Ether a choice holding, and maybe even a ‘Safe Haven’ second to Bitcoin.
Ultimately, as a result of increased touch-points with the fiat currencies, Cryptocurrencies will get closely integrated with the global economy. This will increase the risk of contagion from mainstream economic and political events.
As a secondary consequence, the ICO market will expand rapidly. During 2017, businesses raised more money via ICOs than via Venture Capital. Given progressive legislation in Lichtenstein, Switzerland, and Singapore, Crypto funds, Crypto Banks, and Crypto Investment Banks will become high growth sectors. Interesting times ahead!