What Bitcoin Futures Means for Bitcoin Price

Trying to forecast which direction Bitcoin futures will push Bitcoin prices is strictly a roll of the dice. What I can estimate with seemingly better certainty is that Bitcoin futures will start to damped the volatility in Bitcoins prices.

Bitcoin Futures will Damped Bitcoin Volatility

The CME is using a 5 exchange Bitcoin price index and the Nasdaq is using a 20 exchange price index. This means that these exchanges pull prices from all these exchanges to calculate a blended Bitcoin price. Market makers and arbitrage players who provide liquidity for Bitcoin futures will then have to protect themselves trading the underlying Bitcoin versus the futures. This means that as they buy or sell futures they will sell or buy the actual Bitcoin on various exchanges. This probably means that all the prices on the bitcoin exchanges should converge to be in line with each other.

Currently there are arbitrage players out there doing this across various exchanges now, but there isn’t really a “master” bitcoin price to tie to. All the exchange move independently of each other. Futures means that all exchanges will start to tie to the futures price and to each other.

What Lower Bitcoin Volatility Means

Lower Bitcoin price volatility is a big deal for Bitcoin. For me its the key driver for Bitcoin to transfer from a vehicle for investment/speculation to a transnational currency. When merchants and service providers can count on Bitcoin prices being stable they will look to accept Bitcoin for their products and services. Currently its very difficult to count on what the Bitcoin price will be tomorrow much less three months from now. This makes Bitcoin unfit for payment methods in many circumstances. Stable bitcoin prices should change all of this.

This could secure Bitcoins place as the defacto global payment method. That would be big.

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