Investors Enthusiastic About Bitcoin Futures – What’s the Downstream Impact on Cryptocurrency Markets?
Early investors showed a bullish position on Bitcoin futures, which just started trading on the CBOE. In the first day of trading, January Bitcoin futures edged up to about $2,100 above the day’s spot price to a settlement near $18,500. Prices for March futures are even higher, demonstrating a high level of investor confidence in ongoing increases in Bitcoin’s value.
The early success of the futures launch is good news for anyone who currently has Bitcoin in their wallets, as all signs point to a positive outlook for the asset. However, financial analysts are less clear on how Bitcoin’s high valuation will affect other coins downstream in the virtual currency market.
Impact on Valuation of Alternative Virtual Currencies
Bitcoin serves much of the same global market as all other virtual currencies, and investors have speculated on how movements in the price of Bitcoin affect the value of other cryptocurrencies. Many alternative virtual currencies are traded against Bitcoin on an arbitrage basis. So, for example, a Bitcoin holder can take advantage of temporarily favorable exchange rates and trade her Bitcoin for alternative cryptocurrencies, and a bump in the price of Bitcoin may cause investors to increase trading volume in other coins.
Alternatively, increase in Bitcoin price may cause the hash rate of other virtual currencies to fall, decreasing their transaction verification efficiency and lowering their value. This occurs because miners can be expected to switch from one coin to another based on their anticipated return, so as Bitcoin becomes more valuable, more and more miners may be committing their computing power to the market-leading cryptocurrency.
Can Virtual Currency Replace Cash?
Investors still warn of the Bitcoin bubble, with many financial analysts projecting that the virtual currency will collapse at any moment. However, the positive outlook on Bitcoin futures demonstrates a high degree of confidence in the asset’s ongoing value.
More and more retailers are taking advantage of virtual currencies in their online and brick-and-mortar establishments, as the low transaction fees made possible by blockchain transaction verification can potentially save businesses billions. The incentives to adopt virtual currency as a replacement to cash are there, but the question remains as to whether digital coins will be able to rise to meet their full potential in traditional financial markets.
Virtual Currency Markets Need Greater Certainty
Despite increasing legitimacy and adoption by traditional financial institutions, cryptocurrency markets remain a bit of a mystery to many serious investors. Only time will tell which coins will win and which will lose in the new market, and whether consolidation will make the entire question moot in the near future. However, just about any investor would agree that the market would benefit from better stabilization, transparency, and certainty.
Fortunately – when it comes to the free market – where there’s a will, there’s a way.
Enterprising virtual currency businesses are already developing ways to help stabilize prices and increase certainty in virtual currency markets. The Stamps platform has created a safe and transparent way for companies to raise capital through alternative coin launches. Using the Stamps platform, a company can retain a portion of its initial offering while the rest is allocated to platform users.
Once market demand for the coin has stabilized, the business can liquidate some or all some of their retained coins. If the coin doesn’t find its place in the market, the equity is returned to the issuer and does not impact the overall market. As a result, Stamps has provided a new platform for the introduction of virtual currencies in a manner that creates a much-needed degree of certainty in cryptocurrency markets.
Images courtesy of Stamps