Nasdaq bitcoin futures Wall Street

Forget the plunging prices, Wall Street is still thirsty for bitcoin and cryptocurrencies.

According to Bloomberg, Nasdaq will launch a trading platform for bitcoin futures contracts as early as the first quarter of 2019.

The news comes as ICE, the parent company of the New York Stock Exchange, prepares to launch its own bitcoin futures exchange called Bakkt. 

It’s a sign that institutional players and Wall Street see strong demand for bitcoin trading even amidst the 80% price drop.

What are Nasdaq Bitcoin Futures?

After hinting at the prospect late last year, Nasdaq will finally launch a platform for trading bitcoin futures contracts in early 2019.

The news was reported by Bloomberg and confirmed by Nasdaq partners, VanEck, at Coindesk’s “Consensus” conference yesterday.

The launch will be the first in a range of institutional crypto trading solutions.

What’s a Futures Contract?

A futures contract is a simple way for traders to bet on the future price of an asset, like bitcoin.

It works by agreeing to purchase the asset for a predetermined price at a specific date in the future. 

For example, I agree to buy bitcoin for $6,000 on December 22nd.

If the price of bitcoin is much higher than $6,000 on the date of expiry, I get my bitcoin at a huge discount to the market. I can then turn around and sell it at market value for a big profit.

Of course, it can work the other way too. If bitcoin has fallen far below $6,000, I’m still obligated to pay the agreed price (or I can exit the trade before the expiry date). 

Futures contracts are used by traders to make future bets on price rises (or falls), and they exist for most market assets, like oil, gold, and stock market indices.

Nasdaq Bitcoin Futures: “We Ran A Few Extra Miles With [Regulators]”

The news is a long time coming after the first whispers emerged in 2017. During that time, Nasdaq has been working closely with US regulators, the Commodities Futures Trading Commision, to tighten the screws.

VanEck’s director of digital asset strategy, Gabor Gurbacs, explained: 

“What I’d like to point out is we ran a few extra miles working with the [Commodity Futures Trading Commission] to bring about new standards for custody and surveillance.”

Nasdaq already operates a strict surveillance system on its exchange to pick up signs of manipulation such as wash trading. By integrating this into a crypto trading system, it will give institutional investors a great deal more confidence to trade and invest in bitcoin.

Settled with Bitcoin?

One thing we don’t yet know about the Nasdaq bitcoin futures is how the contracts will be settled.

The only bitcoin futures contracts on the market right now (available via CBOE and CME Group) are settled in cash. So when the futures contract expires, the trader pays (or receives) cash.

The much-hyped Bakkt futures contracts, which are slated for launch in January 2019, are unique because they are settled in bitcoin.

Nasdaq nor VanEck have confirmed how their product will operate.

Wall Street is Coming: Bakkt Launch in January 2019

The Nasdaq futures announcement comes shortly after the hype around Bakkt’s futures contracts.

Bakkt is a cryptocurrency exchange platform, backed by the parent company of the New York Stock Exchange. To put it another way, it’s a big deal.

Bakkt will also facilitate bitcoin futures contracts settled with real bitcoin.

Originally slated to launch early December, the Bakkt launch has been pushed back to January 24th, 2019. The delay was caused by the large “volume of interest.”

2019: a Big Year for Bitcoin?

The first quarter of 2019 is lining up to be huge for crypto. Bakkt is scheduled to launch in January. The Securities and Exchange Commission will make a decision on the much-anticipated bitcoin ETF proposal, and Nasdaq’s futures market will launch.

If 2018 was the year of slow, painful regulatory issues, 2019 could be the year it all comes together.

Learned something new in this article? Subscribe to the Block Explorer newsletter.

Wall Street - Bitcoin hedge funds

Crypto hedge funds are launching at a record rate in 2018, despite the ongoing downtrend in the market.

20% of all hedge funds launched in 2018 are crypto-related, according to new research from Crypto Fund Research. It’s a sign that “big money” and institutional investors haven’t been put off by the year’s selling pressure.

90 Cryptocurrency Hedge Funds Launched in 2018

90 new crypto hedge funds have appeared this year, and that number is expected to rise to 120 before the end of December.

Compare that to 2016 when  just 3% of all new hedge funds were crypto-related.

Approximately half the new crypto hedge funds are based in the US, while others have popped up in the UK, Netherlands, Switzerland, China, Australia, and the “Blockchain Island,” Malta.

Rapid growth aside, however, let’s put things in perspective. The total number of crypto hedge funds still account for just 3% of all hedge funds. In terms of market capitalization, crypto funds manage $4 billion compared to the global hedge fund total of $3 trillion.

What’s a Cryptocurrency Hedge Fund?

A crypto hedge fund invests predominantly in crypto assets like bitcoin and ethereum. They may also invest in ICOs (initial coin offerings – a form of crowdfunding capital in the crypto space).

They differ to crypto venture capital funds and private equity funds which invest directly in blockchain projects and crypto startups.

When you invest in a cryptocurrency hedge fund, your money is pooled with others and the returns are shared. Bear in mind, however, that participating in a hedge fund usually involved high minimum deposits.

Undeterred by Low Prices

The rapid growth of hedge funds in a year when bitcoin has dropped almost 70% is curious. Traditionally, hedge funds sprout up during boom markets to capitalize on an uptrend.

Founder of Crypto Fund Research Joshua Gnaizda said:

“These seemingly unfavorable market conditions have not deterred managers from launching new crypto hedge funds at a record pace. While we don’t believe the rate of new launches is sustainable longer-term, there are currently few signs of a significant slowdown.”

Profit From Volatility

While the market conditions might appear unfavorable, a number of crypto hedge funds still make money when prices are down. Hedge funds can profit from volatility, which is why one crypto hedge fund, Amber AI Group, was able to make a 30% profit in the first quarter of 2018, when crypto prices slumped.

Hedge funds are notorious for short-selling, or profiting from an asset’s decline. By doing this, they can “hedge” their losses and, in some cases, make a profit when the whole markets moves downwards.

Wall Street Embraces Bitcoin

The rise of crypto hedge funds is yet another sign that Wall Street is edging closer to broader cryptocurrency adoption.

With the launch of a bitcoin futures market in 2017, rapid hedge fund growth, and an exchange-traded fund (ETF) on the horizon, the “big money” is coming.

Learned something new in this article? Subscribe to the Block Explorer newsletter.

city skyline banks goldman sachs crypto trading

This week was dominated by rumors that Goldman Sachs has ditched plans for a crypto trading desk, sending crypto prices into a panic. But this is actually good news. Goldman Sachs is instead focusing on a safe, long-term crypto strategy rather than volatile trading.

Bitcoin traders threw themselves into a panic on Wednesday as the market collapsed beneath them.

Bitcoin fell 13% in a day. Altcoins fell as much as 20%. Ethereum hit its lowest price in 12 months.

While other factors were at play for the selloff, many blamed Goldman Sachs, which reportedly sidelined plans for a crypto trading desk.

The Long-Rumored Goldman Sachs Crypto Trading Desk

Goldman Sachs began eying up bitcoin in October 2017. Rumors of a trading desk emerged after they hired Justin Schmidt, a veteran crypto trader. An official from the bank said they were looking into bitcoin possibilities after receiving interest from clients.

This news was among the flurry of optimism that sent bitcoin to $20,000 last winter.

However, nothing was confirmed. In fact, Goldman Sachs distanced itself from crypto trading in January when CEO Lloyd Blankfein said day-to-day trading was not the bank’s priority for crypto. Instead, they would consider buying bitcoin futures contracts for some of its clients.

So Wednesday’s news shouldn’t come as too much of a surprise.

Clearing up the Rumors

To be clear, Goldman Sachs has not ruled out the possibility of a crypto trading desk. The bank’s CFO even called the recent rumors “fake news.”

“I never thought I would hear myself use this term but I really have to describe that news as fake news.” Martin Chavez, CFO.

The bank is not ditching its plans. A crypto trading desk has simply moved down the priority list while they look at better ways to work with bitcoin.

So What Exactly is Goldman Sachs Doing in Crypto?

Right now, the bank is helping its clients get into crypto by executing bitcoin futures contracts. Bitcoin futures are a way of betting on the future price movements. Goldman Sachs is using the bank’s money (“providing liquidity”) to do this.

At the same time, they are working on some form of derivative for bitcoin. A derivative is like an exchange-traded fund (ETF); an easy investing product that would track the price of bitcoin.

A Safe Way to Store Crypto

Most importantly, Goldman Sachs is working on a custody solution that would allow institutional investors to store millions of dollars in crypto safely.

“Physical bitcoin is something tremendously interesting, and tremendously challenging… From the perspective of custody, we don’t yet see an institutional-grade custodial solution for bitcoin, we’re interested in having that exist and it’s a long road.” Martin Chavez, CFO

Good News for Bitcoin

Don’t believe the panic. Goldman Sachs’ strategy is a sound and sensible way to approach bitcoin.

Goldman first needs to prove it can store bitcoin safely. Can you imagine if Goldman Sachs’ bitcoin accounts were hacked? A custody solution is a necessary first step before traditional investors trust their money to a relatively new phenomenon.

Secondly, the bank’s focus on bitcoin futures and derivatives reveals a long-term approach to trading. They are taking cryptocurrencies seriously. They’re looking to build products their investors understand.

It’s no wonder a crypto trading desk is low on the priority list. They simply don’t yet have the infrastructure to store and handle millions in daily, physical bitcoin trades.

Not only that, but high-volume, daily trading at a Goldman Sachs trading desk would introduce yet more volatility to a volatile market.

Wall Street Isn’t Ready for Crypto Yet

Although Wall Street is dabbling in bitcoin, it’s not yet ready to fully embrace it. As we have seen with bitcoin ETF rejections, Wall Street adoption will take time. But, rest assured, the foundations are being laid.

“When we talked about exploring digital assets that it was going to be exploration that would be evolving over time… Maybe someone who was thinking about our activities here got very excited that we would be making markets as principal and physical bitcoin, and as they got into it they realized part of the evolution but it’s not here yet.” Martin Chavez, CFO.

Wall Street is getting on board, but this will not happen overnight. Patience is key.