It is December 11, 2017. This month’s drama in the Bitcoin Saga is US derivatives.
The CFTC has given the CME and CBOE permission to move ahead with Bitcoin derivatives, which began trading today. This news is the most likely cause of Bitcoin’s recent dramatic rise in price, even more pronounced than normal.
Although Bitcoin can be purchased directly in personal-sized quantities, larger investors are in need of avenues to bet on the price of Bitcoin with millions of dollars at once, without doing anything themselves and without actually buying Bitcoin. They do this with the use of Bitcoin derivatives. These are separate financial instruments with a value based on the value of Bitcoin.
Big banks are members of Clearing Houses, which provide financial backing for derivatives markets. In other words, the world’s biggest banks are ultimately responsible for backing up Bitcoin derivatives. Banks hate Bitcoin.
With Bitcoin Futures, banks find themselves backing up a financial instrument which threatens to render the banks themselves obsolete.
In the Fall of 2017, JPMorgan CEO Jamie Dimon called Bitcoin a “fraud”. In the Spring of 2016, about a year and a half earlier, he wrote a letter to shareholders with his thoughts on Bitcoin. “This thing is going to eat our lunch.”
In Bitcoin, banks see their demise and know they’re powerless to stop it. The world’s financial rulers have never been threatened before and they certainly have never felt powerless. Bitcoin undeniably brings both, making banks very uncomfortable for the first time in the history of Modern Banking.
Naturally, the banks seek to obliterate their opponent, and are presently arguing to not allow Bitcoin derivatives.
Let’s now take a few steps back, look at a bigger picture and consider one possible effect the banks’ protest might have if they get their way and somehow manage to forbid Bitcoin derivatives.
Where there’s a Will there’s a Way and where there’s a lot of fast, easy money to be made, there’s a very powerful Will. If there are no BItcoin derivatives allowing financial institutions to invest in Bitcoin, the financiers will invest in Bitcoin directly.
Bitcoin derivatives are a way for financiers to put big money into Bitcoin without directly affecting the supply and demand. The price of Bitcoin remains independent of the demand to invest in it because Futures contracts are are a separate financial instrument.
The financial instruments that are derived from the Bitcoin price do not directly affect Bitcoin’s supply or demand, although the derivatives will indirectly reflect investor’s views on Bitcoin.
Without derivatives, direct investment in Bitcoin will increase dramatically, which will greatly affect its supply and demand. When financiers buy and hold Bitcoin, they will reduce the already limited available supply and increase the already growing demand.
The more the banks tighten their grip, the more they will lose control.
Strong demand for a very limited resource is a recipe for high prices. As Bitcoin’s price rises, more people will want it and it will become more powerful. Just one of the many reasons the Bitcoin snowball cannot be stopped.
Banks will kick and scream, they will use propaganda and all means necessary to stomp out the termite that threatens to undermine their foundation. In their fearful, control-based reactions to the Bitcoin threat, banks will only validate it, making it stronger and more real.
Banks will not go awayIn the end, the best they will hope for is to share the playing field and maintain some semblance of control over those who find it easier to be controlled.
For the rest of us, Bitcoin offers the Choice to opt-out and be Free.