In spite of the seismic drop in the Bitcoin unit price recently, the worlds second largest stock exchange – Nasdaq – is planning on launching a Bitcoin futures product in the coming months.
Sources close to the company spoke with Bloomberg, suggesting that the United States based stock exchange has been in talks with the Commodities and Futures Trading Commission (CFTC) with a view towards achieving regulatory approval to operate a compliant cryptocurrency futures market.
Back in January, Nasdaq CEO Adena Friedman confirmed in an interview with CNBC that the company was investigating Bitcoin futures with a view towards offering the product whilst creating some differentiation from existing offerings provided by rivals, the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE).
Friedman explained:
“What we might look at is more of a total return futures, so it’s a little bit of a different construct.” This seemed to suggest that Nasdaq is looking at a product that differs from it’s competitors in that it would track the spot rate rather than any future price. She added:
“We will have to see whether it makes sense at the end of the day, proper client demand, and on a risk-management side ‘do we feel confident?’ in which case we would look to go to the CFTC.”
It would appear that Nasdaq do indeed feel confident in terms of risk management and that it perceives there to be sufficient market demand for such a product given that it has advanced to talk to the CFTC.
The immediate response from the community via social media has been mixed. Many fear that if this is not a physically settled product, it will not be good for cryptocurrency and could have a detrimental effect on the price of Bitcoin. This view has been expressed by many in reference to the existing non-physically settled Bitcoin futures markets provided by the CME and CBOE.
However, founder of Arturo Capital, Rick Fiebiger- the manager of a hedge fund which specializes in emerging blockchain protocols – expressed the view on Twitter that these concerns are misplaced:
“Here come all the comments about how ‘Nasdaq is the worst thing ever for crypto, it means the bankers will short crypto to death!’…not realizing that Bitcoin Futures is the first step in listing more crypto financial products, and soon, cryptos themselves.”
CME and CBOE launched the first Bitcoin futures products near the height of the crypto market towards the end of last year. Trading has been underwhelming for the most part amidst the cryptocurrency bear market that has led to significant unit price erosion in 2018.
Bakkt, a new futures trading platform established by Intercontinental Exchange (ICE) – owners of the New York Stock Exchange (NYSE) – are also due to launch in 2019. Originally scheduled to commence trading next month, Bakkt recently delayed launch in order to make sufficient preparations to facilitate the new market.
The cryptocurrency community has been more receptive to the arrival of Bakkt on the basis that it involves the physical settlement of Bitcoin futures contracts – something seen as much more valuable for the industry. However, here too there have been concerns expressed with regard to the implications for the industry of such a product offering.
Caitlin Long – a 22 year Wall Street veteran and CEO of enterprise blockchain company, Symbiont – suggested that Bakkt has not clarified completely that it won’t engage in practices that would see cryptocurrency and digital assets being parceled such that it would result in fractionally reserved trading.
Throughout the course of 2018, we have also seen efforts to introduce cryptocurrency exchange traded funds (ETF’s). Despite repeated applications, the Securities and Exchange Commission (SEC) has continually turned down these applications. Applicants have included ProShares, Direxion, Winklevoss Bitcoin Trust, VanEck and GraniteShares. The SEC has repeatedly maintained that as it stands, applicants cannot demonstrate compliance in terms of safeguarding consumers when it comes to the potential for fraudulent activity and market manipulation.
One SEC commissioner, Hester Peirce, publicly expressed her disapproval of the commission’s rejection of a Bitcoin ETF proposed by Winklevoss Bitcoin Trust in July. Appearing on the ‘What Bitcoin Did’ podcast at the weekend, Peirce suggested that whilst a Bitcoin ETF is not inevitable, it is certainly possible over the coming months. She clarified that the SEC had taken a cautious approach to cryptocurrency and rightly so when it comes to ensuring that any scams associated with the industry do not filter through to the detriment of consumers. However, she also claimed that a balance needs to be struck so as innovation is not stifled.
There is a degree of uncertainty in the cryptocurrency market right now given a bear market for the duration of 2018. That bear-ish sentiment has been heightened further due to a significant collapse in cryptocurrency prices over the past 2 weeks. However, there are also reasons for optimism. Week on week we have seen announcements from significant players in the conventional finance world from Goldman Sachs, Fidelity, ICE and others in terms of investment in the cryptocurrency industry. The infrastructure is being put in place to facilitate institutional investment. There are short term challenges in the cryptocurrency sector but it would seem that there is potential for a resurgence in the medium to long term based on these announcements – together with Nasdaq’s decision to enter the market.
