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Ex-CFTC Chair: Trump Admin Coordinated to Pop 2017 Bitcoin Bubble

Former Commodity Futures Trading Commission (CFTC) Chairman Christopher Giancarclo says that the Trump administration coordinated to pop the Bitcoin bubble of late 2017.

They did this by introducing Bitcoin futures on the Chicago Mercantile Exchange (CME). Specifically, Giancarlo says:

“One of the untold stories of the past few years is that the CFTC, the Treasury, the SEC and the [National Economic Council] director at the time, Gary Cohn, believed that the launch of bitcoin futures would have the impact of popping the bitcoin bubble. And it worked.”

The theory was that institutional money would tame the rapidly rising price of Bitcoin on the spot markets, as Giancarlo says: “We believed that, should bitcoin futures go forward, it would allow institutional money to bring discipline to the value of the cash market. And that’s exactly what happened.”

Indeed, the Bitcoin bubble of 2017 peaked at USD 20,000 a day before the launch of Bitcoin futures on CME, after which point the price of Bitcoin began to crash, precipitating the bear market of 2018.

Apparently this decision was driven by the events of the 2008 Great Recession, when a massive economic bubble collapsed and caused widespread loss. Regulators believed that it was safer to pop the Bitcoin bubble than to let it inflate to its maximum size, since then when it pops the losses would be less. Of course, cryptocurrency users, traders, and investors who collectively lost hundreds of billions of USD when the 2017 Bitcoin bubble popped probably disagree with this ideology, since perhaps the bear market would have not been as severe if CME Bitcoin futures were never introduced.

 

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Bakkt Physical Bitcoin Futures Finally Launches

After an entire year of regulatory delays and missed deadlines, the Bakkt physical Bitcoin futures have finally launched. Apparently Bakkt is already open for both institutional and retail traders.

Bakkt physical Bitcoin futures have been highly anticipated ever since being announced over a year ago. These are the first physical Bitcoin futures, meaning contracts are settled for actual Bitcoins, as opposed to the Bitcoin futures on the Chicago Mercantile Exchange (CME) which are settled for cash. Also, Bakkt has been built by the Intercontinental Exchange (ICE), which is the parent company of the biggest stock exchange in the world, the New York Stock Exchange (NYSE).

There was speculation that Bakkt could lead to a major Bitcoin rally, since the physical nature of the futures could increase Bitcoin demand. So far Bitcoin has dropped from $10,000 to $9,700 in the 24 hours since Bakkt has launched. That being said, volume is low on Bakkt since it is only the first day, and perhaps the true effect of Bakkt on the Bitcoin market remains to be seen.

 

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CME Launching Bitcoin Options in Q1 2020

The Chicago Mercantile Exchange (CME), which already hosts the most popular and longest-running Bitcoin futures exchange in the United States, has announced that they will be launching options on Bitcoin futures in Q1 2020.

The difference between a futures and options market is that in a futures market the investor is contractually obligated to make a trade on a specified date in the future, whereas in an options market, the investor has the right to make a trade but not an obligation.

An investor pays a premium upfront to buy the options contract, and the risk is this premium will be lost if the market moves in an unexpected direction. This is actually less risky than the futures market since an investor technically has infinite risk in a futures market.

Notably, the Bitcoin options on CME will be the first regulated and compliant Bitcoin options in the United States and will give a new way for investors to mitigate risk and develop trading strategies in the Bitcoin market.

As Tim McCourt, the global head of equity index and alternative investment products at CME Group says

“Based on increasing client demand and robust growth in our Bitcoin futures markets, we believe the launch of options will provide our clients with additional flexibility to trade and hedge their bitcoin price risk. These new products are designed to help institutions and professional traders to manage spot market bitcoin exposure, as well as hedge Bitcoin futures positions in a regulated exchange environment”.

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How CME, NASDAQ, and Bakkt Bitcoin Futures Impact the Bitcoin Market

What Are Bitcoin Futures And How Do They Impact The Bitcoin Market?

A futures market offers traders the ability to bet on whether the price of an asset, such as precious metals, commodities, or stocks, will go up or down in the future. Specifically, a futures contract is an agreement to buy or sell an asset for a predetermined price at a precise time in the future.  If the price of the asset goes up during the lifespan of a futures contract then the trader makes a profit. This is because the trader gets to buy the asset at a lower price than the asset’s true value when the futures contract expires. 

Also, futures markets can be used for hedging risk. For example, if a business uses gasoline to power its fleet of trucks, and a price rise is expected, then that business can buy a gasoline futures contract. Rising gas prices make it more expensive to operate the fleet of trucks, but this expense is negated by profits earned from the futures contract. Thus, trading futures contracts can lessen the blow of adverse price movements when operating a business. 

CME and CBOE Cash-Backed Bitcoin Futures Have Hurt the Bitcoin Market

The first official Bitcoin futures market in the United States launched in early December 2017 on the Chicago Board Options Exchange (CBOE), and the Chicago Mercantile Exchange (CME) launched the 2nd Bitcoin futures market shortly afterward on 17 December. The CBOE Bitcoin futures market has actually closed down due to lack of trading activity, likely due to the CME Bitcoin futures becoming extremely popular and overshadowing CBOE. For example, when CBOE announced the closure of their Bitcoin futures in March 2019, CME was seeing USD 90 million of trading volume per day with CBOE only having USD 8 million of volume. In May, CME saw daily Bitcoin futures trading volume in excess of USD 500 million. 

CME Bitcoin futures is one of the top choices for institutional traders that want to buy and sell Bitcoin. This is because CME Bitcoin futures are officially regulated, can handle high volumes, and there’s no risk of Bitcoin being stolen because the futures are backed by cash, with no actual bitcoins involved. 

Therefore, CME Bitcoin futures provide a conduit for institutional investors with deep pockets to get involved in the cryptocurrency market. However, institutional demand flowing into the CME Bitcoin futures market does not increase demand in the Bitcoin spot markets, since CME Bitcoin futures do not use actual bitcoins. Instead, the CME Bitcoin futures are actually diverting demand away from the Bitcoin spot market, as well as inflating the Bitcoin supply since the futures contracts are essentially equivalent to paper bitcoins. 

Although the diversion of demand away from spot markets and the printing of paper bitcoins already theoretically cause Bitcoin’s price to be lower than it would be if the CME Bitcoin futures did not exist, the worst thing is that CME introduces massive short-selling pressure into the Bitcoin market. The Federal Reserve posted a statement indicating that the 2018 bear market was likely initiated by the launch of the CME Bitcoin futures, and it is apparently quite common for an asset to crash in price when a futures market is launched for the first time. Indeed, the day of the CME Bitcoin futures launch, 17 December 2017, was the same day that Bitcoin hit its all-time high and began to crash.

The reason it is possible to short on a futures market is that traders can buy Bitcoin futures contracts with funds from a margin loan, and then sell the Bitcoin futures contracts immediately. If Bitcoin’s price declines during the contract period, then the traders can buy back the Bitcoin futures contract at a lower price when the contract expires, leaving behind a tidy profit in their account. 

Essentially, it was just about impossible for institutional investors to short Bitcoin before the CME and CBOE Bitcoin futures launched, and institutional investors generally only had the option to buy and sell spot Bitcoin. The CME and CBOE Bitcoin futures gave institutional investors the capability to truly short Bitcoin for the first time.

Aside from helping to precipitate the 2018 bear market, the CME Bitcoin futures influence the Bitcoin market on a month to month basis. An analysis shows that the price of Bitcoin often pivots, i.e. reverses its trend, when the monthly CME Bitcoin futures expiration occurs. This may represent CME Bitcoin futures traders collectively deciding to go short or long at the beginning of a new monthly contract period. 

For example, in late June 2019, as Bitcoin recorded a new 2019 high of USD 13,800, CME Bitcoin futures traders began to collectively open short positions for July. Interestingly, institutional traders were mostly going short, while small traders were going long and expecting the Bitcoin rally to continue. Ultimately the institutional traders on CME ended up being correct, with Bitcoin declining as low as USD 9,000 during July. 

Therefore, it is important for Bitcoin traders to be aware of CME Bitcoin futures expiration dates since it might herald a change in the market trend. 

Bakkt Physical Bitcoin Futures, Will They Ever Launch?

While CME Bitcoin futures are cash-backed and seem to have an overall negative influence on the Bitcoin market, it is possible that one day physical Bitcoin futures will launch on Bakkt. Physical Bitcoin futures would provide a safe and efficient conduit for institutional traders to get involved in the Bitcoin market, while simultaneously increasing spot Bitcoin demand since for each futures contract purchased on Bakkt there are actual bitcoins backing it.  

The launch of Bakkt physical Bitcoin futures has been delayed several times since 2018 due to regulatory concerns. Specifically, the Commodities Futures Trading Commission (CFTC) has delayed Bakkt because it wants to custody the Bitcoin on behalf of its customers, while generally, futures markets in the United States use a 3rd party qualified custodian. 

As of late July, Bakkt has begun testing their physical Bitcoin futures, but there is no official launch date, which is unfortunate considering that the Bakkt physical Bitcoin futures would likely have a positive impact on the market. 

NASDAQ Bitcoin Futures, More of the Same?

In 2018 NASDAQ, which is one of the biggest stock exchanges in the United States, announced that they would launch Bitcoin futures in the first half of 2019. Just like with Bakkt, NASDAQ seems to have missed its target launch date due to CFTC regulatory concerns. 

BREAKING: BTC is now being traded on the Nasdaq! I bought one BTC through my TDAmeritrade account! According to the chart it started trading April 10, 2019!! Other digital assets are soon to follow!! 🚀🚀🚀pic.twitter.com/1VgE1Whoa4

— Cryptopolis (@cryptopolis_x) April 22, 2019

In April there was speculation that NASDAQ had begun testing a Bitcoin-based product under the symbol CXERX. It is unknown if this was the Bitcoin futures product or something else since NASDAQ did not disclose any details about it. 

As of now there is no publicly disclosed launch date for NASDAQ Bitcoin futures. More importantly, it seems that the NASDAQ Bitcoin futures will be backed by cash like CME. Although NASDAQ Bitcoin futures would provide a conduit for institutional traders to enter the Bitcoin market, this could end up adding to the negative effects of the CME Bitcoin futures. 

In summary, Bitcoin futures like those on CME offer institutional investors an easy way to enter the Bitcoin market, which has caused the CME Bitcoin futures to become quite popular. NASDAQ wants to get in on the action and launch their own Bitcoin futures markets. Unfortunately, it seems the cash-backed nature of CME Bitcoin futures has damaged the Bitcoin market via diverting demand away from the spot market, introducing massive short selling pressure, and printing paper bitcoins. If NASDAQ Bitcoin futures do eventually launch it could be more of the same. It seems the greatest hope for the Bitcoin market is Bakkt physical Bitcoin futures since they would provide a conduit for institutional investors to increase spot market demand. Unfortunately, regulators are making it difficult for Bakkt’s physical Bitcoin futures, and there is no sign that they will launch anytime soon. Perhaps Bakkt will eventually launch and help negate some of the damage caused by the CME Bitcoin futures. 


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Bitcoin Gives in to Selling Pressure

Bitcoin Gives in to Selling Pressure

Bitcoin could not withstand the selling pressure after losing its grip on USD 10,000 yet again during Europe trading time yesterday when the cryptocurrency slid down from its daily high of USD 10,259 to remain under 5-digit figures all the way until Eastern Coast in the US opened to trade.

Even then, the recovery failed to last four hours. After making the arduous climb to USD 10,129, price suddenly took a plunge to USD 9,660 at around 10:30 pm UTC and now trades around that same price as Shanghai approaches afternoon (CoinDesk).

Altcoins are now back at where they were before last week’s recovery, and the bearish bias looks to be confirmed if Bitcoin cannot reclaim lost territory within the next 24 hours.

$BTC looks to be creating lower-highs and lower-lows on the daily chart

Marked are the open and support areas based on the weekly chart with previous support possibly flipping to resistance

If confirmed, watching the next weekly support at $8975 as a potential target pic.twitter.com/yG2WO2yrzX

— Josh Rager 📈 (@Josh_Rager) July 23, 2019

Josh Rager, crypto analyst, is one of those who has now turned to go with the current, with previous support levels likely to turn into resistance. The lower highs that have been managed, coupled with lower lows, leads Rager to believe that we may have to dig in and prepare for a USD 8,975 valuation should bears continue to have their way.

With the headlines in the news still equal in terms of positive and negative coverage this week, Bitcoin’s dominance as pointed out yesterday, continues to be the constant winner, and advocates will be pleased to see how sentiment finds good support in fundamentals like that.

One potentially important piece of news that could affect sentiment this week is that of Bakkt, the platform for Bitcoin futures that was predicted to be the catalyst for institutional investment in Bitcoin. After over a year of intense hype leading up to its original launch at the end of 2018, Bakkt eventually ran into operational hurdles and has been delaying its launch over and over again.

Its latest announcement yesterday seemed to be more of the same news as in the past few announcements, in so many words explaining that they were not ready to formally launch the platform. Whether this delay is to do with technical aspects as seems to be from the wording of their blog posts is a matter of some speculation online, with some believing that it is actually their regulatory compliance that is holding the launch back.

Today kicks off user acceptance testing @ICE_Markets for the Bakkt Bitcoin Daily & Monthly Futures contracts

Testing is proceeding as planned with participants from around the world

— Bakkt (@Bakkt) July 22, 2019

As per the info from the platform, they are now accepting people to test their daily and monthly futures, with international users invited to apply to become the first testers. The timing was deliberate, since 22 July 2019 is only two days after the 50th anniversary of Apollo 11. Once fully in play, Bakkt’s futures will be listed and traded at ICE Futures US and cleared at ICE Clear US.

Derived from the word “backed”, Bakkt’s major difference from previous iterations of Bitcoin futures is that its offerings will be the first one backed by actual Bitcoin, rather than cash settled like the offerings by other platforms. Some crypto commentators believe that it is this need to buy or sell actual Bitcoin to settle futures contracts that will really drive trading volumes for Bitcoin, as well as fuel an increasing demand for it, eventually driving prices upwards for the long term. The US Commodity Futures Trading Commission (CFTC) Commissioner Christopher Giancarlo himself believed that fintech’s sheer pace of progress had been the major cause for the regulators to stall their approvals for such instruments like Bakkt.

Many continue to believe that Bakkt is still significant and will have a major role to play in determining long-term trends for the crypto market. Fundstrat Global Advisors managing director Sam Doctor is confident that Bakkt will be ready in its full form by September. He says that institutional money is still very much in the wings, just waiting to pounce:

“There appears to be a critical mass of adopters ready to come on board on Day 1 of the Bakkt launch, with the sales team gaining traction among brokers, market makers, prop trading desks and liquidity providers.”

$BTC 1W CME Futures. Recap of unfilled gaps: ($11,730.00, $8,440.00, and $7,180.00) also note EMA 26 has crossed over EMA 55 as a potential bullish sign for the mid term. Short term let’s see which gaps get filled first. #Bitcoin #Crypto pic.twitter.com/Dixbv3T2xH

— Bart Simpson (@CryptoBartSimps) July 22, 2019

Whatever the developments with Bakkt, the more immediate concern now for Bitcoin holders is how speculators will react, particularly because CME futures contracts which are about to expire has an existing gap around USD 8,500.

Some believe that this is now the rational level for Bitcoin to arrive at before it identifies a new support level. Optimists aren’t too worried, though. As this one trader puts it:

we had the cme futures bear.
soon we will have the bakkt bear.

— Diary of a REKT man (@diaryrektman) July 23, 2019

And so, if we are now in the throes of the CME bear, as we seem to be every end of month, we should be prepared for a Bakkt bear. Judging from the past attempts at price breakdown, though, USD 8,500 levels will be seen by many as a rare, if not last, opportunity to make serious entry points.

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Novogratz Galaxy to Launch Crypto Options Contracts Trading

contracts

Mike Novogratz’s Galaxy Digital is planning to launch crypto options contracts trading joining the current market trend in moving towards derivatives trading.

With more institution investment interest in cryptocurrency, Galaxy Digital has said that it is responding to inquiries from both crypto and non-crypto firms in hedging against crypto assets volatility, often a barrier to new companies joining the market.

In finance, an option is a contract which gives the buyer (the owner or holder of the option) the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price prior to or on a specified date, depending on the form of the option.

An encouraging word from Chicago Mercantile Exchange (CME) for the markets is that the long-awaited interest in institutional investors appears to be gaining ground; an observation also shared by JPMorgan Chase (JPM) executive Nikolaos Panigirtzoglou who said that such investment was beginning to impact on Bitcoin markets. Bitcoin futures are standardized contracts that bind a party to buy or sell Bitcoin at a predetermined date.

Yoshi Nakamura, global head of business development at Galaxy Digital said that some recent interest in this type of trading is coming from mining firms and from lenders although he admits the move into crypto options contracts trading is still relatively new.

BTC futures traded at around USD 10,000 yesterday on the CME showing such trading is on the up. Akuna Capital and Cumberland, the Chicago-based cryptocurrency trading unit of DRW Holdings LLC, are other companies currently supported by over-the-counter (OTC) trading.

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Interest in CME Bitcoin Futures Reach All-Time High

Interest in CME Bitcoin Futures Reach All-Time High

The Chicago Mercantile Exchange (CME) data shows that the interest in Bitcoin futures trading is now at an all-time peak as Bitcoin enjoys a renewed interest in the markets.

The Twitter post by CME revealed this week that interest has peaked with an all-time high of 5,311 contracts totaling 26,555 BTC, or approximately USD 247 million at press time. Bitcoin is currently trading at USD 9,292.60.

An encouraging word from CME for the markets is that the long await interest in institutional investors appears to be gaining ground; an observation also shared by JPMorgan Chase (JPM) executive Nikolaos Panigirtzoglou who said that such investment was beginning to impact on Bitcoin markets.

Facebook’s announcement of its own cryptocurrency development has the potential to boost market interest and has had major news coverage this week. Many analysts are reporting that Libra Coin coverage is pushing Bitcoin’s current bull run, although legislators in Washington have expressed that they are ready to step in and regulate the social media giant prior to any product launch.

From next week, Chicago Mercantile Exchange (CME) will be the only US regulated platform issuing Bitcoin futures but London broker TP ICAP has said that it will be trading cash-settled contracts shopped on that platform with the Bitcoin derivatives market also gaining interest globally.

Bitcoin futures are standardized contracts that bind a party to buy or sell Bitcoin at a predetermined date.

 

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London Broker Chooses Crypto Derivatives Market as Safe Zone

London Broker Chooses Crypto Derivatives Market as Safe Zone

A major London broker is now moving into Bitcoin after losing 36% of its market value in a day’s trading in 2018.

The company, a division of the world’s biggest interdealer broker TP ICAP has been wooed by the advantages of trading in Bitcoin and has become an intermediary to those wanting to trade in Bitcoin futures as well as planning to add non-deliverable forwards tied to the digital asset.

The 36% loss of the company’s market value over 24 hours of trading was enough to provoke the London brokerage to look for another way of doing business, and the derivatives market clearly looked like an option. Simon Forster, overseeing TP ICAP’s move into crypto, thinks that now is the time to make the move:

“We want to be close to what’s happening within this nascent asset class because we believe it’s important to invest in the early stages of a growing market… TP ICAP also understands that this technology could disrupt or impact other asset classes where we currently operate, so we feel it’s important to be informed.”

Although London has been chosen for its launch into Bitcoin futures support for its customers the company has plans to expand services to the US and in Asia. From next week, Chicago Mercantile Exchange (CME) will be the only US regulated platform issuing bitcoin futures, but TP ICAP has said that it will be trading cash-settled contracts shopped on that platform.

 

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CBOE Futures Closure Unlikely to Impact Bitcoin

bitcoin, CBOE, futures

In about a week’s time, Bitcoin futures at CBOE will cease operations after almost a year and a half. After its last futures contract expires on 16 June 2019, it will close indefinitely.

CBOE spokeswoman Suzanne Cosgrove explained to Bloomberg that there were no plans at all by the company to introduce any new crypto trading products, after confirming its decision to close, announced earlier in March. She said:

“[CBOE] is assessing its approach with respect to how it plans to continue to offer digital asset derivatives for trading, but we have nothing new to announce at this time.”

Although Bitcoin futures markets have had some sway over the price of Bitcoin ever since their introduction —  it is sometimes credited for helping bring on the bull market in 2017 — analysts do not believe that this closure will have any impact on the price movements this time around. This will all be thanks to the success of CBOE’s rival in Bitcoin futures, CME Group.

Just last month, CME Group recorded its highest ever volume for Bitcoin contracts: 33,700 individual contracts worth over USD 1 billion on a single day on 13 May 2019.

Markets analyst Alex Krüger also said that Bitcoin was CME’s second highest traded asset in May and that demand was not diminishing from institutions and accredited investors:

“Bitcoin is the second most heavily traded asset at the CME when measured by the volume / open interest ratio. In other words, bitcoin is an asset very actively traded throughout the day… Volume is the number of contracts traded in a day, while open interest is the number of outstanding contracts held (unsettled) at the end of the day. A high ratio points towards market participants actively trading intraday for whatever reason (hft, arbitrage, etc).”

And with Fidelity and Bakkt also scheduled to come later this year, it doesn’t seem like the bulls will stop their pace.

 

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PayPal, Visa Face No Dire Threat from Bitcoin, Claims Analyst

An analyst at research firm MoffetNathanson has claimed that Bitcoin is no more than a minor threat to established methods of payment such as Visa and Mastercard.

Lisa Ellis, working for the researchers who cover the media and internet retail sectors, suggested that speed of transaction delivery will remain Bitcoin’s main hurdle to becoming a challenger in the industry. It is a concern of some of the world’s largest retailers.

Ellis, an outspoken critic of Bitcoin, said that so long as Visa and Mastercard were available, she wouldn’t even buy a cup of coffee with Bitcoin. She saw little sense in casting any preference in using cryptocurrencies over more traditional payment methods such as cash, credit or electronic payment. She appears to leave the door open for possibilities, however, acknowledging that the day Bitcoin would be used as a mainstream payment method may lie in the future.

However, one important factor overlooked by the MoffetNathanson analyst is the excessive fees charged by credit card companies, which is driving some companies to reconsider their options. Rumors that the supermarket giant Kruger might be considering Bitcoin as an alternative payment method have been backed up by comments made by Morgan Creek recently. The company’s partner, Anthony Pompliano, recently announced that he had spoken to a Kroger Digital representative regarding adding crypto payments as an alternative to Visa, after Kruger ditched the credit card giant due to excessive fees.

In reality, Bitcoin and other cryptocurrencies’ value have rarely reflected their use in terms of market position. Usage is well documented as being in the ascendancy moving forward, and Bitcoin is now recognized as a store of value by intuitional investors with interest mounting elsewhere in futures contracts after both CME and CBOE exchanges began offering Bitcoin futures in 2018.

 

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