When Bitcoin futures trading first gained US regulatory approval at the end of 2017, the crowd went wild. At that time, Bitcoin was flying high, about to hit its all-time price spike of nearly $20,000. Since then, the price of Bitcoin has tanked. However, both the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE) have continued to trade bitcoin futures over 2018 and achieved steady growth. But the futures market hasn’t attracted the degree of institutional investment that seemed almost inevitable a year ago.
Now, as 2018 is drawing to a close, Nasdaq has just confirmed that it’s also planning to launch Bitcoin futures trading early next year. According to quotes in the UK Express, which broke the news, the move by Nasdaq could be a “game changer” that delivers more stability to Bitcoin. Is this a prescient forecast, or just hot air?
Breaking it Down
When the CME and CBOE first obtained regulatory approval for trading of Bitcoin futures, many speculated that the approval would be a starting gun. Bitcoin would take off as institutional investors would move into the cryptocurrency markets and provide a launchpad for the SEC approval of Bitcoin exchange-traded funds (ETFs).
While it’s true that the launch of Bitcoin futures probably helped the price pump at the end of 2017, the rest hasn’t really come true. The SEC-approved ETF is still as elusive as ever. Institutional investors remain cautious, although glimmers of hope sparkle as some institutions express bullish sentiments, even while the cryptocurrency markets are languishing in the doldrums of a sub-$4k Bitcoin.
Nevertheless, Bitcoin futures trading continues to show healthy growth, which is perhaps unsurprising given that futures provide one of the best means of shorting Bitcoin. CME reports its average daily volume of Bitcoin futures trades on a quarterly basis. Trading during the second quarter of 2018 saw a significant increase of 93% while in Q3 it rose 41%.
In Q3, Bitcoin futures average daily volume rose 41% and open interest was up 19% over Q2 . Learn how market participants are using BTC to manage risk in changing markets. https://t.co/Yt41SzsHku pic.twitter.com/Kw4OX0QaKT
— CMEGroup (@CMEGroup) October 17, 2018
What’s Not Being Said
However, what’s interesting about the Nasdaq announcement is as much what it isn’t saying, as what it is saying. Recently, there’s been a lot of excitement about the launch of Bakkt, a Bitcoin futures trading platform owned InterContinental Exchanges (ICE), which is also a parent company of the NYSE.
Bakkt isn’t just a new entrant to the existing Bitcoin futures market. It will be introducing “physically settled” Bitcoin futures for the very first time. This is in contrast to CME and CBOE, both of which currently trade in cash-settled futures.
Nasdaq hasn’t yet disclosed if it will be trading in cash or physically settled Bitcoin futures. This lack of information is most likely because regulatory approval from the Commodity Futures Trading Commission is still outstanding, but the answer to this question could be interesting.
If Nasdaq does plan to launch physically settled futures around the same time as Bakkt, it will mean two heavyweights are bringing a new product to market simultaneously. The entry of two big names in the finance sector to the Bitcoin futures market will surely arouse the interest of institutional investors.
On the other hand, if Nasdaq plans to launch cash-settled futures, it will have competition for the retail investor market that’s still the mainstay of Bitcoin futures trading, which will directly compete with CME and CBOE.
How Digitex Will Have the Edge for Retail Investors
Our zero-fee model gives Digitex a unique appeal to retail investors over other futures exchanges. The DGTX token means our users don’t pay any commission or fees for using the Digitex platform. This is because we use our native token in the denomination of all profits, losses, margins and account balances on the Digitex platform. Only DGTX token holders can trade on Digitex, which creates a demand for the token and thus drives its value.
It’s this value that allows us to offset any fees that exchanges usually charge. It means we can release a limited volume of new tokens each year, to replace revenues we would otherwise generate from charging fees. Decentralized voting by DGTX token owners will determine the number of new tokens released, meaning no external party can manipulate the price against the wishes of the token holders.
Using an exchange like CME or Nasdaq to store digital assets comes with the same security concerns as using centralized cryptocurrency exchanges such as Coinbase or Bithumb.
Centralized exchanges are susceptible to hackers, as in the case of Mt.Gox, which lost $473 million to attackers in 2014. Not much seems to have changed in 2018, as crypto users lost $59 million in funds held by Japanese exchange Zaif as recently as September.
On the other hand, as a non-custodial exchange, Digitex doesn’t hold traders’ funds on our platform. The Digitex exchange provides real-time settlement of futures trades with the security of decentralized account balances.
Account balances are held by independent, decentralized smart contracts on the Ethereum blockchain. This provides an extraordinary level of assurance for our users. Even if regulators were to attempt a legal seizure, we have no means of giving access to anyone’s account.
2019 – The Year of Bitcoin Futures
While Bitcoin futures have had a promising start in 2018, the entry of Bakkt and Nasdaq to the market, along with the innovations of Digitex could throw the markets wide open. Physically settled Bitcoin futures may finally lure institutional investment to the market, particularly if the SEC eventually approve that long-awaited Bitcoin ETF. Meanwhile, retail investors have every incentive to get stuck into Bitcoin futures with the promise of secure, zero-fee trading on Digitex.