Bitcoin seems to be on a meteoric rise with no signs of slowing down (save for those investors and analysts who urge caution in the face of a potential bubble, at least). Earlier this week, the price of a single coin topped $10,000 for the first time. Following that record-setting peak, a number of major news publications reported that Nasdaq would launch futures contracts for bitcoin sometime in 2018. While this is not the first mainstream exchange to announce plans of this type, it is the largest; Nasdaq is the second-largest stock exchange in the world.
Nasdaq the Latest Exchange to Jump On Board
Earlier in November, Chicago's CME bourse announced that it would provide bitcoin futures contracts to investors by the end of 2017. Bitcoin's popularity has only continued to rise since that news, prompting speculation that bitcoin futures contracts would be introduced by other exchanges as well. The Verge reported that, despite prominent voices that are "[deriding] bitcoin as a bubble or a Ponzi scheme, almost every major financial institution has been exploring how they might interact with bitcoin and its underlying structure, the blockchain."
How Will Bitcoin Futures Work?
The introduction of bitcoin futures will be a shift in the cryptocurrency space. As with other futures contract, these will be a legal agreement to buy or sell a bitcoin at a predetermined price at a specified time in the future. They will allow investors to make bets on the rise and fall of the price of the cryptocurrency, profiting if they end up correctly predicting which way the price will move in the future. The important distinction between bitcoin as a cryptocurrency and bitcoin futures -- as with all futures contracts -- is that the latter will allow investors to make bets on bitcoin (and, potentially, to profit) without actually owning any of the currency itself. This will effectively amplify the amount of financial leverage on the underlying cryptocurrency.
Cantor Fitzgerald, the trading and prime brokerage firm, also announced recently that it would launch bitcoin derivatives. With the rise of these and other investment products related to bitcoin, it's likely that cryptocurrency skeptics are going to become more concerned rather than less. After all, the rapid increase in derivatives pegged to real estate assets including mortgages was a major part of the financial crisis of 2008.
Still, bitcoin and the ever-expanding field of blockchain-related startups and companies continues to thrive. ICOs have continued to see success, even as some prominent stories of fraud and theft have taken place, and even in spite of cautions against this mode of fundraising from some of the biggest names in the industry and government. If bitcoin and cryptocurrencies are a bubble, it seems that the broader investor world has yet to become overly cautious. Futures and derivatives may only add more fuel to the fire.