“Bitcoin Futures will be listed and it should launch in the first half of next year – we’re just waiting for the go ahead from the CFTC but there’s been enough work put into this to make that academic.”
Nasdaq is reported to have “run a few extra miles” with regulators to ensure their futures contracts are free from manipulation and other nefarious market practices. The bitcoin futures platform will integrate Nasdaq’s unique surveillance system which targets and minimizes manipulation.
“We’re Doing This No Matter What”
Asked about launching the trading platform in the midst of bitcoin’s biggest drop since 2013, Christinat was unfazed:
“We’ve put a hell of a lot of money and energy into delivering the ability to do this and we’ve been all over it for a long time – way before the market went into turmoil, and that will not affect the timing of this in any way. No. Period. We’re doing this no matter what.”
A UK broker at XTB confirmed Nasdaq’s sentiment, saying: “This isn’t a knee-jerk reaction or jumping on the bandwagon – this is a serious plan.”
Indeed, Nasdaq claims it has been in the blockchain game for five years now, working on the best way to tap into, and support, the market. It appears the fruits of its labor are now beginning to appear.
Many have claimed the launch of Nasdaq futures will act as a catalyst for the next price surge. However, it’s worth remembering that futures contracts also allow traders to bet against an asset, putting downward pressure on the price.
When the first bitcoin futures contracts were introduced in late 2017, it triggered a record price run, followed by a quick reversal.
Will history repeat itself when the Nasdaq futures platform arrives?
America’s second oldest bank, State Street, says there is a “high level of interest” in cryptocurrency from its customers. However, those customers are not rushing into the market.
State Street’s managing director, Jay Biancamano, said there was “no sense of urgency on the part of our clients to move into these assets right now.” In particular, State Street is seeing little demand for crypto custody – whereby an institution would safely store digital assets on behalf of its customers:
“Currently none of our clients are looking for us to house these assets in custody.”
Crypto custody is a hot topic on Wall Street right now. Fidelity is reportedly launching a crypto custody and exchange platform for its customers, while Goldman Sachs is also exploring ways to hold crypto assets.
Despite the cautious tone, Biancamano said his firm is “blockchain friendly:”
“We do talk to our clients who are interested in doing this and we are looking at this very closely. But we are not putting a sign that we are opening for business. That said, we are a blockchain-friendly firm; we are very involved in the vertical.”
State Street might not be throwing its arms around crypto just yet, but they will be ready when the next wave arrives. “There is no sense of urgency on the part of our clients to move into these assets right now. When they do, we want to meet them there.”
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.
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.
Blockchain technology is often referred to as one of the most disruptive developments of the 21st century. From medical records to artificial intelligence, the list of potential use cases is endless. In particular, the finance sector is one of the best fits for this technology.
Blockchain has several key advantages. It is secure, transparent, and immutable (meaning it cannot be edited and transactions cannot be reversed). That makes it the perfect way to store data and funds, and open doors to the world of big money.
With the debut of smart contracts (contracts that execute automatically when certain criteria are met), the blockchain world got a massive step closer towards wider adoption. These features are sending ripples through the financial world in the following ways:
A decentralized, digital system has the potential to weaken fraud attempts, improve document turnaround times, and streamline accounting for businesses. Moreover, by working with smart contracts, the consortia aims to progress in cross-border trading and to enhance the supply chain industry.
At this point in time, the third-most-valuable cryptocurrency is Ripple’s XRP, which has announced more than 100 partnerships with major banking institutions around the world. Most of the banks are using Ripple’s blockchain solution called xCurrent. However, at least three companies are now using Ripple’s cryptocurrency service, xRapid, to settle cross-border payments.
Initial pilots reveal that blockchain solutions can reduce international payment times from days to minutes (and at a 40-70% discount in fees).
Blockchain and the Stock Market
Wall Street is one of the best places for the implementation of blockchain technology, and the conversation is ramping up around “security tokens.” Security tokens are issued by companies, much like stocks and bonds, but on a blockchain.
It has benefits for shareholders and the company itself.
Shareholders, for example, can take advantage of increased transparency and simplified stock market duties, like dividends and voting. Companies may also add extra features to their security tokens, which might be access to products, discounts or memberships.
For the company, issuing stock on a blockchain improves liquidity, distribution, control and investor relations. Companies that issue security tokens will also benefit from customizable trading settings, automated whitelisting processes and the tracking of their investors.
Several big institutions have expressed interest in issuing tokenized securities. The most popular supporters are Overstock’s subsidiary tZero, cryptocurrency exchanges Coinbase, Binance, and OKEx, as well as the main stock exchanges in Switzerland and Malta.
The real estate sector is one of the most profitable businesses in the world, but there are many ways it can be improved. Real estate agents, as well as private investors, usually face high costs for bureaucracy and notaries. They are also flooded with tremendous waves of paperwork. Blockchain and smart contracts would undoubtedly save time and wealth by cutting out intermediaries. It also provides a secure and reliable place to store data.
The tokenization of assets would drastically reduce the time needed to trade property. And it would allow us to easily divide the ownership of property among multiple investors. As a consequence, investing in property may become available to everyone around the globe, and not just wealthy individuals.
Insurance corporations represent another industry primed for the introduction of blockchain technology. On the one hand, there are lots of people in the world that can’t live without insurance for health or property. But dealing with insurance companies is extremely time-consuming, especially when trying to claim refunds.
Meanwhile, most businesses in this sector are confronted with several issues in terms of verifications, data collection, and auditing policies.
One of the world’s largest insurance companies, People’s Insurance Company of China (PICC), has teamed up with the blockchain startup VeChain to address these problems. According to VeChain, its native blockchain VeChainThor “provides enterprises with the tools, securities, and governance to properly control their assets while collaborating across multiple verticals, industries, and even countries.”
S&P 100 enterprise MetLife is also wading into the blockchain space. With their Singapore based innovation center LumenLab, the insurance company is actively experimenting with smart contracts on a private blockchain.
In their sandbox project Vitana, the customer connects electronic medical records with their smartphone to issue a policy in a matter of minutes. In addition, a smart contract triggers an automatic payout upon diagnosis, without the need to make a claim.
Blockchain and Cross-Border Payments
Everyone who has ever made an international wire transfer has experienced the huge effort and time it requires to do so. Cryptocurrencies and blockchain are perfectly poised to fix this issue. Projects like Ripple and Stellar are already building an ecosystem to transfer value across borders, yet these digital assets still face serious obstacles before a wide adoption is in sight.
To become a viable form of money, currencies need to store value fairly well. Most cryptocurrencies do not fulfill these requirements due to their extreme volatility. However, many people depend on a currency with a relatively stable value. Tether’s USDT is probably the most popular stable cryptocurrency at the moment. Unfortunately, this does not solve the problem of fiat currencies, as the token is pegged to the US dollar and controlled by a centralized power.
Consequently, many projects are working on an alternative, more suitable, method of creating a stable coin. One of the main ideas is to back a cryptocurrency with all kinds of assets, including precious metals, stocks, property, and other cryptocurrencies. Stable coins and tokens are still in a very early stage of development, but the potential to substitute all fiat currencies is real if a project eventually succeeds.
A handful of international governments, such as Russia and China, are currently exploring the potentials of having their own cryptocurrency. The South American nation Venezuela announced its official cryptocurrency petro, which was created after the hyperinflation of the bolivar this year. The petro is based on NEM’s blockchain and backed by the country’s oil and mineral reserves. However, many critics denounced the project for its lack of transparency and decentralization, which are originally the fundamentals of a blockchain currency.
Obstacles for Blockchain Adoption in Finance
There are still some hurdles standing in the way of worldwide acceptance. Not least the problems of scalability, speed, and decentralization. Applications that include micro-transactions or high-frequency trading, like decentralized exchanges, are particularly in need of a fast, scalable and secure blockchain architecture.
There are hopes for improvement. New concepts are being developed, like “proof-of-stake”, where block validations are conducted through owning stakes instead of computation power. Sharding is another alternative, where the blockchain history is split into multiple sections and computed in parallel.
A decentralized network is also required to maintain extraordinary security standards. A blockchain is generally referred to as a secure place to store funds and data. Yet, we occasionally observe serious security issues like 51% attacks, which happened at least half a dozen times to prominent cryptocurrencies in the last year.
In other cases, the chains of major cryptocurrencies face problems when consensus nodes go offline all of a sudden. The fear of quantum computer attacks is something every digital currency has to deal with.
Apart from the blockchain itself, there are also many incidents where smart contracts have been reported as wrong. In order to convince massive enterprises to adopt the technology, blockchain constructions are required to provide a predictable and trustless experience.
There’s one more problem. Blockchain and cryptocurrency communities are split as to whether the technology should offer full anonymity or explicit transparency. The dilemma is a stumbling block for convincing big institutions and governmental authorities. The vast majority of governments around the globe are not in high spirits about privacy coins. Tax bureaus and other regulatory entities demand insight into transaction histories.
However, most companies and institutions refuse to use cryptocurrencies as long as the histories of their accounts are public to everyone. In order to find a fitting solution, several international universities are collaborating in the “Accountable Privacy” initiative. With its project Abelian, the initiative is proposing a concept of privacy, where the user determines the transparency level of his transactions.
We are still in the experimental phase of blockchain in the financial world. But as we can see above, there is phenomenal scope for this technology to transform the way we do business. Just don’t expect it to happen overnight.