Beginning December 18th, Bitcoin futures will be introduced through two major US U.S. Exchanges. With all this talk about Bitcoin, let’s delve into exactly what it is how it will affect the markets.
Bitcoin was introduced in the wake of the 2008 financial crisis as a way of avoiding governments and central banks. It is the world’s first decentralized digital currency and can be sent directly from user to user without any bank or intermediary. Bitcoin had operated solely as a peer to peer network until its introduction to Wall Street, slated for December 18th.
Introduction to Wall Street
The Commodity Futures Trading Commission green-lighted plans by the CME and the Chicago Board Options Exchange to introduce Bitcoin futures. Wall Street is now recognizing it as a viable aspect. This marks the first time that a government-regulated exchange will be involved in trading a crypto-currency. According to Barrons.com, because the futures are cash-settled, traders will receive dollars on the settlement date instead of actual Bitcoin. So Wall Street technically won’t be getting its hands dirty by buying Bitcoin directly. But getting listed on some of the largest exchanges in the country is still a huge step for Bitcoin, which had been associated with drug dealing and considered a fraud by some in the past.
Others refer to a back office system as the trade processing system to match buys and sells, monitor margin, charge swaps, and send settlement notifications. In retail FX trading this work is done by all the major trading platforms such as Condor FX PRO, MT4, or cTrader and the back office simply must receive this data and report this. Institutional FX systems often need this additional backend to be built by the broker. Even on the retail side the back office can be used to store data not available in the platform itself such as end of day snapshots and change history as well as additional performance calculations.
How will it affect Wall Street?
Up until now, clients who held Bitcoin had no way to hedge their risks. Now they will not only be allowed to hedge but also take opposing views. CFTC Chairman Chris Giancarlo said that “Bitcoin, a virtual currency, is a commodity unlike any the commission has dealt with in the past. We expect that the futures exchanges, through information sharing agreements, will be monitoring the trading activity on the relevant cash platforms.” The introduction of Bitcoin to Wall Street also makes it extremely more reputable. After turning cautious on Bitcoin earlier this month, Fundstrat’s Tom Lee told clients to jump back into the digital currency. “We no longer feel caution is warranted, and recommend steady buying of Bitcoin at these levels.” As a result, the strategist raised his mid-2018 price target for Bitcoin to $11,500 from $6,000, representing nearly 40 percent upside to its current level. Bitcoin now has the distinction of being the world’s most coveted currency. Nasdaq is planning to add its own futures next year. Bitcoin has arrived on Wall Street and is here to stay, whether regulators are ready or not!