Are You Ready for the $5 Trillion Bitcoin Boom?

Sunday, 10 December. Make a note of that day in your diary now.


Something big is happening on that day.

CBOE Global Markets Inc. will become the first exchange in the world to offer futures on cryptocurrencies.

The largest futures exchange in the world, the Chicago Mercantile Exchange (CME), will make its debut a week later on 18 December.

Yet both exchanges will draw their crypto values from different sources.

CBOE will base its pricing from the Gemini cryptocurrency exchange. While CME plans to use a custom reference rate created with Crypto Facilities.

Meanwhile, US financial investing firm Cantor Fitzgerald plans to launch bitcoin options trading on its exchange in early 2018.

And the NASDAQ also plans to add crypto derivatives in the first half of next year.

You know what this tells you? The big money has found its way into cryptos.

If you thought 2017 was the year bitcoin went mainstream, just wait until next year. 2018 is when cryptos will get big.

And by big, I mean the top end of town — those with billions of dollars joining in the crypto boom. No longer is bitcoin the domain of those with a deep understanding of algorithms.

From here, things are about to get interesting.

For starters, the price of bitcoin traded at US$12,100 (AU$15,954) yesterday. And you can bet the price rises will get more extreme now that Wall Street’s been lured in.

Bitcoin — the most well-known cryptocurrency — has a market cap of US$200 billion (AU$264 billion) today.

The total crypto market is worth about US$300.5 billion (AU$263 billion).

And while everyone has been sitting back and marvelling at the insane bitcoin rally — up 1,121% in the year-to-date — it’s highly likely that it’s going to get even bigger next year. 

What a time to be alive

Take Aaron Lasker as an example. As the co-founder of BreadWallet — a way to buy, send and receive bitcoin — he says today’s paltry US$200 billion market cap is nothing. He reckons the total bitcoin market will be worth around US$5 trillion (AU$6.5 trillion) in a few years’ time. Which would make each bitcoin worth around US$250,000 (AU$329,000).

With new institutional investors finally having a platform to whack their billions into, we will see an entirely different section of the market moving in.

However, it’s one thing to get excited about the big money flowing into cryptos. But there’s a difference between crypto futures contracts and typical futures contracts.

That is, crypto futures will be settled in fiat dollars. Traditional futures have the option of cash payments or delivery of the underlying commodity. Which means that no trader has the option to ask for physical goods in the case of cryptos. So while futures contracts will draw their value from various crypto data sources, they will never get the option for delivery.

This is unusual. UBS economist Paul Donovan says it’s this particular aspect of the crypto futures contract that mirrors the tulip bubble mania of the early 17th Century.

He says that, up to now, tulip bubble comparisons have missed the mark. But having a cash settlement is only part of the problem.

There’s also the disparity between the two markets. Any crypto futures will be under the watchful eye of the government. The underlying market, however — a various basket of undefined cryptos — is not. In fact, the crypto market is much more like the Wild West compared to kind of oversight you see in the derivatives market.

Over time, there could be discrepancies between the actual crypto market and the data backing up futures contracts. Perhaps, in the long term, there may even be two very different markets: The true crypto market and the synthetic futures market.

This means that the futures market may be full of speculators looking to make a quick buck.

Tomorrow I’ll show you why that could be a good thing.

Kind regards,

Shae Russell,

Editor, Markets & Money

Shae Russell started out in financial markets more than a decade ago. Working with a derivative brokering firm, she helped clients understand derivative markets, as well as teaching them the basics of technical analysis. Since joining Port Phillip Publishing eight years ago, Shae has worked across a number of publications. She holds the record for the highest-returning stock recommendation, in which a microcap stock returned over 1,200% in six months. Ask her about it, and she won’t stop yapping on. For the past two years, Shae has worked alongside Jim Rickards as his Australian analyst, translating global macro trends for Aussie investors, and how they can take advantage of these trends. Drawing on her extensive experience, Shae is the lead editor of Markets & Money. Each day, Shae looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

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