CME Group’s Regulated Futures Market May Enable Retail Giants to Accept Bitcoin
CME Group’s announcement that they will begin trading Bitcoin futures catapulted the Bitcoin market to new highs two weeks ago. Many Bitcoin investors are waiting with bated breath for trading to commence and are expecting further price growth. Indeed, when the world’s largest futures market recognizes Bitcoin as a legitimate asset and decides to integrate it into their offerings, it would seem to be a very good thing.
What does it actually accomplish?
But why? Other than CME Group’s imprimatur, which is undoubtedly valuable in itself, what specific good is going to come from this new marketplace? After all, creation of a large and regulated futures market will make it far easier for deep-pocketed traders to short Bitcoin, potentially causing the price to tumble.
Cointelegraph had the opportunity to speak with David Johnson, CEO of Latium and experienced foreign exchange (FX) trader, to get his take on what CME Group’s announcement means. Johnson believes the biggest boost to Bitcoin will come not from the trading of futures per se, but from what that trading enables: retail adoption.
A lesson from the airlines
The airline industry is one of the biggest buyers of oil futures in the world. The reason is obvious; they need to “lock in” the price of jet fuel so they can charge passengers an appropriate fare. If airlines were subject to the daily whims of the oil market, they would find it nearly impossible to operate effectively.
The process of locking in prices on a commodity or asset is referred to as “hedging.” The airlines don’t want to buy massive amounts of jet fuel and have to store it for long periods of time; all they want is a stable price. Therefore, they go to the futures market and buy or sell specific types of options which effectively guarantee the price they will pay for fuel for a period of time.
Right now, most companies that accept Bitcoin as a form of payment use third-party payment processors to receive the Bitcoin and immediately convert it to cash, and deposit the funds in the company’s bank account.
This works, up to a point. Unfortunately, these companies don’t have a long track record and are quite small. Huge retailers, like Walmart or Amazon, probably would be wary of doing business with them.
CME Group’s futures market changes all of this. According to Johnson, major companies with careful risk management strategies have been slow to get involved in Bitcoin because of the risk. There is a risk to storing Bitcoin.
There is counterparty risk in dealing with a small payment processor without a long and trusted reputation. There is risk of inadequate liquidity to exchange Bitcoin for cash. There’s regulatory risk, as your counterparties might not be in full compliance.
If you want Amazon or some other mega-company to start accepting Bitcoin, the first step is to create a way to mitigate these risks. Johnson says this is the single most important thing the new futures marketplace will bring.
Large retailers will be able to accept Bitcoin, have it immediately converted to cash or hedged, and do so on a massive, trusted, regulated exchange.
Johnson believes the full effects of the new marketplace won’t be seen for six to eight months, as liquidity builds and large retailers become aware of it. More places to spend Bitcoin, of course, will make it more useful to ordinary consumers and will presumably increase its price, in time. Many in the community have long believed that retail adoption is one of the keys to boosting Bitcoin’s price; without a place to spend cryptocurrency, it’s nothing more than a speculative instrument.
CME Group will also provide an on-ramp for traditional institutional investors. Some of them have hundreds of billions of dollars at their disposal, but they generally have strict rules about what they can invest in. At present, such institutions have shied away from Bitcoin due to the difficulty of storing the currency or dealing with small, unregulated Bitcoin exchanges without a long history of doing business.
While an institutional investor might not be able to buy Bitcoins directly, there will likely be far fewer restrictions on buying futures contracts. Institutions can, therefore, bet on Bitcoin price without actually owning the asset.
That brings us to a rather interesting point: this is a futures market. No actual Bitcoin will change hands on CME’s marketplace. In effect, market participants will be trading “paper” Bitcoins. Commodities experts like Ted Butler have long railed against the “paper silver” and “paper gold” that trade on regulated exchanges and have accused these markets of distorting the price for actual physical metals.
It remains to be seen what effect this market will have on Bitcoin.
Almost as important as retail adoption, CME’s exchange will almost certainly bring about the SEC’s approval of a Bitcoin exchange traded fund (ETF) at some point in the future. The regulator had already said earlier this year when rejecting the Winklevoss twins’ proposal, that approval would be likely if regulated futures markets were established:
”When the spot market is unregulated–there must be significant, regulated derivatives markets related to the underlying asset with which the exchange can enter into a surveillance-sharing agreement.”
An ETF would be big news because it would provide another way for institutional – and retail – investors to gain exposure to Bitcoin.
In the case of an ETF, the fund must actually hold the underlying asset, meaning that if the ETF has traded shares equivalent to 100,000 BTC, they must actually own 100,000 BTC. This much buying pressure could only spell good news for Bitcoin price.
Many in the Bitcoin community have long wanted to invest part of their 401(k) or IRA in Bitcoin, but have found it difficult or impossible to do. Those that succeed invariably pay high fees (to create a self-directed IRA) or sizeable premiums (to buy shares of GBTC).
A Bitcoin ETF would be a low-fee and simple way of adding Bitcoin to your traditional retirement portfolio. It would be as easy as calling up your broker and asking them to place the order…or doing it yourself online.
Johnson noted that regulation is inevitable and instead of fighting it, Bitcoin owners should embrace smart regulations. In fact, he suggests that Bitcoin businesses and investors come up with their own body of rules that regulators could easily adopt.
That would be a much better option, Johnson notes, than having regulators unknowledgeable about Bitcoin try and create regulations which might well be impossible to follow.
For Bitcoin to continue its growth, integration into existing infrastructure is essential, Johnson said. Wall Street’s growing acceptance of the currency and regulators’ increased understanding will go a long way toward bringing Bitcoin out of the shadows and boosting its price.
Mainstream media attention, Wall Street acceptance, possible retail adoption and ETFs all spell a bright future for digital currency. As cryptocurrency becomes more mainstream and further integrated into financial markets and daily life, one wonders if Tim Draper might be correct:
“In five years, if you try to use fiat currency, they will laugh at you. Bitcoin and other cryptocurrencies will be so relevant … there will be no reason to have the fiat currencies.”
Written By CoinTelegraph
Shitshow or Success? Bitcoin Gold’s Launch Has Been Anything But Smooth
An attack, a chain split and general chaos on social media aren’t getting the developers behind bitcoin’s latest fork down.
The bitcoin gold cryptocurrency, which split from bitcoin in October, at the time touting a new mining scheme, has had a rocky start since it launched its live network on Nov. 12.
Within the first day after its release, one of the network’s mining pools, “pool.gold,” suffered a denial-of-service attack that took it offline for an hour and a half. Shortly after, the blockchain split when pool.gold and another mining pool called Suprnova found blocks at the same time.
Eventually, one chain was ruled as the ledger of record, but not before mining was halted on the other chain and pool.gold reset, erasing funds for some unlucky miners.
“It’s just been a mess with the opening – nodes not syncing and different heights of the blockchain and then restarting nodes and resetting and erasing miner’s totals,” said a bitcoin gold miner who wished to remain anonymous.
He added candidly:
“[It’s] just a shitshow.”
Still, observers might have a different reaction, as the difficulties appear to validate criticisms of the bitcoin gold developer team, which has come under scrutiny for deciding to set aside the first round of block rewards for the developer team.
Even MinerTopia, a crypto mining community that opened access to bitcoin gold, threw shade at the developers, tweeting, “It’s been sad since the day it launched. Very poor quality devs. They made their money now and ran and left the mess to all the pool owners and miners.”
‘No pump and dump’
That said, many in the bitcoin gold community remain optimistic that these early issues will be overcome with persistence and ingenuity.
One of the main complaints in the aftermath of the pool.gold chain split, for example, came from miners wondering what happened to the bitcoin gold they had mined.
About $70,000-worth of bitcoin gold was lost in the decision to migrate to just one of the two chains, and in response, bitcoin gold developer Martin Kuvandzhiev said the miners who lost out are being given funds from the developer team’s own “pre-mined” stake.
He told CoinDesk:
“The miners deserve it. The decision was taken to recover all the funds because this is the way to treat this kind of situation.”
In this way, the developers behind the project argue the distribution shows their capacity to properly allocate the funds they set aside and that have proven so contentious.
Kuvandzhiev said 40 percent of the 100,000 bitcoin gold coins (less than 1 percent of the total 21 million) the development team mined before the network was opened to the public are available to be spent. And to spend any of the coins, four of six developers must sign a transaction.
As for the other 60 percent of the coins? Those are time-locked, meaning they are to be released gradually over the next three years for development costs.
“There’s no way to pump-and-dump,” Kuvandzhiev said. “We’re taking all the measures required just to make sure we’re doing the things right.”
Room for enthusiasm
And although it’s had a slow start, bitcoin gold does seem to be faring relatively well.
Yavor Todorov, a bitcoin gold developer who provides support for the cryptocurrency’s miners, acknowledged that, despite the “chaos on social media,” the network itself is stable.
More than 50,000 machines are mining bitcoin gold within a handful of mining pools, according to Kuvandzhiev. And crypto exchange HitBTC has begun supporting bitcoin gold trading, while wallet provider Coinomi has added support, hinting at early business adoption.
The bitcoin gold team also supports a core wallet, and hardware wallet provider Trezor released code that allows users to download the software to store bitcoin gold. Kuvandzhiev also expects Ledger, another hardware wallet provider, to add support in the coming weeks.
Furthermore, the development team is working with other exchanges and wallets to add support for the new coin.
According to the bitcoin gold block explorer, transactions are happening also, just not at regular intervals yet. An account that hadn’t made a transaction with bitcoin for nearly seven years even claimed about $5 million-worth of bitcoin gold after its release.
Based on this early activity, the anonymous miner that spoke to CoinDesk said he expects everything to calm down and start running normally in the next few days, given what he positioned as the strength of the project’s value proposition.
“I’m sure the people that are actually excited to have a bitcoin chain that’s back to mining without ASICs will stick around,” he said.
Finger pointing continues
But first, those on the development team have to settle the confusion and contention.
And that isn’t looking easy. For one, scam wallets have popped up to bilk users; in response, the development team is currently doing reconnaissance to put together a list of known scams.
Secondly, on Monday afternoon, Todorov stated on the project’s official Slack channel that Suprnova had gained 51 percent of the network’s mining power, a centralization that bitcoin gold launched to eliminate.
And lastly, several users are incensed by a 0.5 percent “hidden fee” for mined blocks that Kuvandzhiev integrated into the mining pool software he developed.
According to Kuvandzhiev, he told miners about the fee, which could be manually removed from the open-source code, in Slack chats, but because he didn’t list the addition in the GitHub code repository, some thought the addition was a trick.
Kuvandzhiev suggested the outrage was caused by the one mining pool that hadn’t removed the fee line in the code. Either way, he has since merged a pull request to delete the fee altogether.
To him, however, the incident just goes to show how delicate a process launching a new cryptocurrency can be, and how transparency rules on the open, public ledger.
“For a single miner with one mining rig this [fee] is $1 per month, which is nothing I think,” he told CoinDesk, adding:
“I hoped people will just appreciate that I have spent this time to make a product for them.”
Seat belt image via Shutterstock
Written by CoinDesk
Bitcoin Bulletproofed: Wuille, Maxwell and More Propose Scalable Privacy Tech
Bitcoin may be one step closer to offering users improved confidentiality.
Proposed in a new paper authored by heavyweight cryptographers including Dan Boneh, Pieter Wuille and Greg Maxwell, “Bulletproofs” outlines a new technique that would reduce the size of so-called “confidential transaction” code – long floated as a possible way to shield the transaction amounts currently public on the blockchain, the cryptocurrency’s globally distributed ledger.
A rough sketch of the confidential transactions idea was first proposed informally on a popular bitcoin forum in 2013 by Adam Back, CEO of bitcoin startup Blockstream, and while the technology has been iterated on over the years, it still comes with a high cost. Transactions that use the technology take up about 16 times more space in the blockchain than normal bitcoin transactions.
Because of this, the idea has been dismissed as too bulky for the live bitcoin network, which is already facing much-discussed scaling problems.
But the new paper, co-authored also by Benedikt Bunz, Jonathan Bootle and Andrew Poelstra, contends Bulletproofs will slash the size of confidential transactions to under even that of a normal transaction.
In the announcement email, Maxwell said:
“This cuts the bloat factor down to about 3x for today’s traffic patterns.”
However, Maxwell went on to note that even though the confidential transactions idea is making progress, there are still issues to iron out. For one, the time it takes to verify a confidential transaction is still a “bottleneck” developers are continuing to chip away at.
And while the researchers can’t yet hint when the code might go live, the strength of the team hints at the growing awareness that some public blockchains are lacking in privacy.
For example, privacy emerged as a hot topic during ethereum’s annual developer conference Devcon3 this year, with the protocol looking to integrate zk-snarks, the tech behind anonymous cryptocurrency zcash. The example also serves to highlight the different approaches to the issue being taken across communities.
Bulletproof vest via Shutterstock
Written by CoinDesk
Trezor Announce Support for Bitcoin Gold But Other Platforms Steer Clear
Hardware wallet manufacturer Trezor have announced support for Bitcoin Gold, making them one of the few major platforms to commit to the fledgling fork. While Trezor integration is good news for BTG, it illustrates the lack of mainstream vendors who’ve pledged to accept the new digital currency.
Bitcoin Gold Finds a New Home
The birth of bitcoin gold has been largely overlooked amidst the bitcoin and bitcoin cash dramas ongoing, with few mainstream platforms committing support for BTG so far. Although BTG futures trading soared over the weekend, amidst bitcoin cash reaching record highs, by the time the bitcoin gold mainnet went live on Sunday, the excitement had dissipated.
As news.Bitcoin.com reported, BTG got off to a rocky start with talk of a chain split, but the network has since stabilized. Trezor’s announcement that BTC holders prior to the fork will soon be able to claim bitcoin gold spells good news for the nascent cryptocurrency. If it is to attain widespread adoption within the crypto community, it requires support from as many platforms as possible.
Low Support and Low Volume
Thus far, BTG has been limited to a handful of major exchanges including Bitfinex, HitBTC, and YoBit, though the total number of exchanges where bitcoin gold is available runs to 18. It is also now supported by half a dozen wallet providers. Inevitable comparisons have been made between bitcoin gold and bitcoin cash, which got off to a far more auspicious start when it debuted back in August.
Following initial recalcitrance from some exchanges, most platforms eventually disbursed bitcoin cash to BTC holders, and wallet developers swiftly added support. This time around, there was less fanfare surrounding another bitcoin fork due to a multitude of factors, including lack of promotion and concerns over the size of the pre-mine that was carried out to fund ongoing development.
Once Trezor customers make BTG available to their customers it will be interesting to see whether the coin is held or dumped. Despite suffering a few teething problems upon launch, these are early days for the bitcoin gold team, who have big plans for their BTC spin-off, whose proprietary features include mining difficulty adjustment with every block. Should the debates over bitcoin mining centralization ramp up, bitcoin gold, with its GPU algorithm, may emerge to stake a claim for being a more decentralized bitcoin.
Image via Bitcoin.com
Written by Bitcoin.com