Bitcoin is intrinsically volatile due to many factors. One of them is Bitcoin’s inelastic nature. On top of that, experts now forecast that the upcoming futures trading will further exacerbate Bitcoin’s volatility. As a result, cryptocurrency exchanges are already taking precautionary measures.
Bitcoin’s Volatility About to Increase
Bitcoin’s price fluctuations are wild. Its price can swing by more than $3,000 USD in just a few hours. Traditionally, volatility is measured by the volatility index, also known as the CBOE Volatility Index (VIX). However, as of this writing, Bitcoin does not yet have a generally accepted index.
Bitcoin futures trading is here. CBOE Global Markets will start trading Bitcoin futures (XBT) on December 10, 2017. Then CME Group will launch Bitcoin futures, based on the CME CF Bitcoin Reference Rate (BRR), on December 18, 2017. And, according to Bloomberg, NASDAQ might be planning to launch Bitcoin futures sometime in 2018.
How will futures trading affect Bitcoin’s price volatility? Nobody knows.
Allice Lloyd George, an investor at RRE Ventures, posed this very question to Arthur Hayes, CEO of BitMEX, who already has firsthand experience running cryptocurrency derivatives exchanges in Hong Kong. George asked Hayes whether futures markets will help the ecosystem and smooth out volatility. Hayes replied:
Initially, because of the way these contracts are structured, they will actually increase the volatility of Bitcoin.
In fact, Bitcoin exchanges are getting ready to face an upsurge in volatility when the trading of Bitcoin futures contracts starts. Already, Bitcoin is swinging to the downside by a fifth of its value, hours before the starting of futures trading…