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Will CME and CBOE Change the Course of Bitcoin Trading?

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There has been a lot of media buzz in the investment world around the introduction of bitcoin futures trading. Two of Chicago’s major firms, namely Chicago Mercantile Exchange (CME Group Inc) and Chicago Board Options Exchange (Cboe), have announced plans for bitcoin futures trading on their respective platforms, with the latter already launching its contract on Sunday. While the main fear regarding future bitcoin trading at this point is price manipulation, investors are skeptical about how the whole situation will pan out.

Fear of Price Manipulation

As mentioned earlier, price manipulation is a big threat to the profitability of bitcoin futures trading. According to the Commodity Futures Trading Commission (CFTC), they will only play the role of a derivatives regulator and not actually manipulate the underlying cash contract. Exchanges will continue to play a major part in handling the underlying cash contract, keeping it safe from the dangers of manipulation. Since the underlying cash market of bitcoin is not regulated, the CFTC has also warned investors about this fact.

Fig 1

Figure 1: Hypothesised Daily Trend of Bitcoin Values

The Role of CBOE and CME in Bitcoins Trading

The CBOE and CME both have been competing to become the market of choice in the United States. CBOE has already rolled out its bitcoin futures contracts, which they call XBT futures, with a limited free trading offer for the rest of the month for its customers. The rival CME group, on the other hand, is scheduled to release their version of hitcoin futures Dec. 18.

These announcements played a pivotal role last week, influencing traders and institutional investors to perform bitcoin futures trading in a more recognized and secure market. The price of a single unit of bitcoin was also affected, jumping from a formidable $10,000 to a new record high of close to $20,000. The main reason for this can be attributed to investors who understand that the exchanges will bring liquidity and price stability on an otherwise unstable and volatile cryptocurrency.

Here are just some of the ways bitcoin futures trading will change the course of bitcoin trading significantly.

  1. Risk: There’s no denying that bitcoin’s past has been marred by volatile spikes and crashes.  Some of these price changes have occurred over a very short period, enabling traders to recover their positions within a short period of time.  However, with the introduction of CME and CBOE futures trading, the United States markets might prolong the decline through the “domino” effect of selling futures trading.  Moreover, a snowballing effect through selling can affect the entire market.  The Futures Industry Association has already stressed on the bitcoin volatility issue and has requested for some form of “guarantee fund” to clear settlements to the community.
  2. Unstable Exchanges: Besides the CME and CBOE, the majority of bitcoin exchanges in the world come from unregulated markets without proper overseeing or supervision. This is problematic for traders since such exchanges form a reference point in price for the asset. Frequent outages in exchanges are a real threat to bitcoin’s price, often resulting in wild price swings. For instance, Coinbase and IG group, two famous bitcoin exchanges stopped trading on a Friday. As a result, bitcoin’s price shot up and subsequently crashed within 20 minutes.
  3. Increased Volatility: Futures markets work very differently than commodity markets, which draw in a lot of traders as well as speculators. When it comes to bitcoin, the recent Whipsaw in price is unfavorable for the introduction of new traders in the market at this point.
    The increase in speculation surrounding bitcoin price will result in even more price volatility if the number of traders is increased. Many people are of the opinion that the recent parabolic price curves will attract traders with added incentives to play with its price.
  4. Trading Profits: The aspect of trading profits becomes more complicated with the CME’s contract rules. CME’s contracts have price limits which are 20% above or below bitcoin’s reference price. This is done in order to curb unpredictability and regulate volatility.  The sole purpose of these price limits is to minimize the adverse impact of the cryptocurrrency’s wild price swings on futures markets.
    Economists, however, have stated that this might result in an opposite effect, where the trader’s profits are compromised significantly. This is due to the fact that the reference price of the whole bitcoin market is based on exchanges, which are largely operational in unregulated markets.  Such unregulated markets see frequent price swings in excess of 20%. This directly results in futures traders who will no longer benefit from the spike of a greater than 20% increase in bitcoin prices, at the aforementioned exchanges.

Side Effects of Bitcoin Futures Trading on the Market

The bitcoin market is poised to receive institutional money as a result of futures trading.  It will also open up various avenues of asset investment, as many funds that are currently prohibited from dealing in bitcoin-like alternative assets will also be able to participate in the trading exercise.
This, however, can be a major problem, as investors won’t actually be pouring their funds into the bitcoin market, but rather acquire synthetic derivates instead. No extra money goes into bitcoin itself, as these futures do not require ownership of actually bitcoins.

Final Word

The introduction of bitcoin futures trading in two major firms is definitely a blessing as well as a curse.  Both exchanges are seeking to exploit bitcoin’s popularity by attracting interest from Wall Street. Institutional investors have also been keen to trade the asset in a more recognized and regulated environment, which have also seen the increase in CME/CBOE shares by at least 9%. Normal traders are also required to pay higher than normal accounts to backstop their bitcoin trades and allow continued funding for their trade positions. However, it still boils down to the trader’s decision and his or her understanding of the movement of the bitcoin markets, which have in the past experienced significant and unpredictable volatility.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 9 rated postsHira Saeed is a tech geek girl with a passion to write on latest technology trends. She is the Founder of Tech Geeks community in Pakistan and also runs her copywriting and social media agency, Digital Doers. Follow her on @heerasaeed.




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Bitcoin

Bitcoin: Metcalfe’s Law Points to Six-Month Price Target of $10,000

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The price of bitcoin rebounded on Sunday, helping to engineer a broader recovery in the cryptocurrency market following the latest bearish onslaught that drove values to 15-month lows. In all likelihood, the latest move higher is nothing more than a dead cat bounce as short-sellers appear keen on testing new lows in the near future. Long-term, however, bitcoin appears destined to return to $10,000 based on a regression model of Metcalfe’s Law (more on that later).

BTC/USD Update

Bitcoin’s recovery track showed greater upside on Sunday, with price action concentrated well north of $3,500 on most major exchanges. The leading digital currency traded within a $300 range on Bitfinex, with the latest reading showing $3,679. That represents a gain of 5% for the day. Bitcoin peaked at $3,745.10 earlier in the day, some $450 higher than Friday’s swing low.

Daily trade volumes across all virtual currency exchanges totalled $5.1 billion, according to CoinMarketCap. That’s well above the minimum threshold needed to sustain a much larger short-term rally. (As Hacked previously reported, bitcoin struggles to engineer higher highs when 24-hour volumes fail to break $4 billion.) It’s also likely that over-the-counter trading is equal to or greater than this amount.

Aggregate data courtesy of CoinMarketCap show an average price-per-coin of $3,586, up 5.1% over the previous day. At current prices, bitcoin has a total market capitalization of $62.5 billion. At this time last month, the digital currency was valued well north of $110 billion.

Despite the latest recovery effort, bitcoin is still in the control of bearish hands, which means that a test of the $2,800-$3,200 support zone is likely. This area is likely to trigger a fresh wave of buying as bitcoin resumes its consolidation-dump-consolidation cycle.

The total cryptocurrency market was valued at $115 billion at the time of writing, which is equivalent to bitcoin’s market cap just over a month ago. Over the past 24 hours, the market has added around $7 billion, with all major coins reporting gains.

Fair Market Value?

The latest onslaught on bitcoin’s price has invited speculation that the digital currency is trading well below its fair market value. This is further corroborated by the Forbes bitcoin price estimator, which pegs bitcoin’s fair value closer to $4,900. The data are based on a regression model based on Metcalfe’s Law, which suggests that a network’s value is proportional to the square of the number of connected users.

By analyzing the number of unique active users and daily transaction volumes, Forbes estimates that bitcoin’s price should return above $10,000 by mid-2019. Of course, bitcoin doesn’t always behave according to the rules of fundamental analysis. That being said, it’s important to note that Forbes expects active users and daily transaction volumes to rebound significantly over the forecast period, which makes the forecast more palatable than, say, Tom Lee’s $15,000 price target (by Dec. 31, 2018, no less!).

Forbes claims that the estimator has predicted bitcoin’s price with an accuracy of up to 94% between 2012-2017.

While it’s impossible to tell where bitcoin might end up six months from now, the forecast period could be an important window for gauging the currency’s future trajectory. By June 2019, Intercontinental Exchange and Nasdaq will have already launched their bitcoin markets and the U.S. Securities and Exchange Commission (SEC) will have already ruled on the VanEck SolidX Bitcoin Trust. Investors can also expect new developments around security token offerings and the regulatory approval process for exchanges looking to list them.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 691 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Bitcoin’s Dead Cat Bounce Proves Limited as Price Struggles to Hold $3,400

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Bitcoin’s overnight recovery proved limited on Saturday, as the leading digital currency struggled to maintain $3,400 in the wake of yet another 15-month low.

BTC/USD Update

At the time of writing, the major exchanges were quoting bitcoin’s price between $3,365-$3,385. The cryptocurrency fell within that range on Coinbase, Bitstamp, Bitrex and Gemini, among others. However, bitcoin traded at a significant premium on Bitfinex, with prices hovering around $3,446.

Aggregate data courtesy of CoinMarketCap show a bitcoin price of $3,425, which represents a gain of 0.7% compared with Friday. BTC broke above $3,500 during the overnight session as part of a broader market rally but has failed to sustain those levels. This suggests that bitcoin is establishing a lower trading range following the recent selloff.

Nearly $6 billion worth of BTC has traded hands on virtual currency exchanges in the last 24 hours. BitMEX was the largest market, accounting for more than a quarter of total trades. The platform has emerged as a leading venue for shorting BTC during the month-long skid.

The protracted bear market has left bitcoin with a larger share of the overall market capitalization. The total value of all cryptocurrencies is now worth just over $109 billion. At $60 billion, bitcoin accounts for 55% of the total market capitalization, according to the latest available data.

Lower Highs, Lower Lows

As Hacked reported on Friday, the bitcoin price is likely to test $3,000 in the short term as the bears look to test new psychological lows. In terms of technically significant levels, the next parabolic support is located between $2,800 and $3,200. This has previously served as a high demand area.

Analysts and investors have struggled to understand the forces behind bitcoin’s precipitous drop. The downtrend, which began on the eve of the bitcoin cash hard fork, morphed into an all-out panic sale in a matter of days. The author recently argued that the BCH hard fork proved more costly than ever predicted because it forced a major bitcoin mining pool to divert all its resources toward supporting its version of the BCH upgrade. So the hard fork not only fractured the BCH community, but had a direct impact on the bitcoin ecosystem.

Once investors and speculators hit the panic button, long-term holders soon followed. Investor sentiment has yet to recover despite the recent wave of positive news flow involving institutional investment, custody services and exchange funding.

Some analysts believe that the SEC’s decision on a highly touted bitcoin ETF could dictate the market’s trajectory for the rest of 2019. As Hacked reported Friday, the agency has delayed its ruling on the VanEck SolidX Bitcoin Trust until Feb. 27, 2019.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 691 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Crypto Update: Sell-Off Deepens as Majors Break Key Levels

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The past 24 hours saw another crucial bearish move in the cryptocurrency segment, with the majority of the top coins violating their prior bear market lows and starting another leg lower in the damaging downtrend. Even the relatively stronger coins turned bearish in our trend model with regards to the short-term time-frame while staying bearish throughout the recent consolidation period.

The top coins trading at their lowest levels in more than a year, and the total value of the market got close to $100 billion following the historic rout, and although the broader picture remains oversold, and sentiment is still excessively negative, for now, traders shouldn’t enter even ultra-short-term positions after today’s breakdown.  Since no bullish leadership developed and the relatively stronger coin failed to maintain their bullish momentum, odds still favor the continuation of the bear market.

BTC/USD, 4-Hour Chart Analysis

Bitcoin broke down below the key $3600 and triggered a short-term sell signal in Asian trading, and it extended its losses below the prior bear market low since then. The coin is now likely headed for a test of the very important $3000 support/resistance level, with the bearish long-term setup clearly being intact.

Traders and investors should stay away from entering new positions here, even as the coin is still oversold from a broader perspective, with strong resistance zones above $3600 ahead between $4000 and $4050 and near $4450.

ETH/USD, 4-Hour Chart Analysis

Ethereum continued to show technical weakness compared to Bitcoin, and it also violated its prior bear market low and the key 95-$100 support zone. The coin is now bearish on both time-frames in our trend model, and traders and investors should still not enter positions here, despite the deeply oversold broader picture.  Strong resistance above $100 is ahead near $120, $130, and $150, while strong long-term support is now found in the $73-$75 zone.

Altcoins hit New Bear Market Lows as Ripple Joins Crash

XRP/USDT, 4-Hour Chart Analysis

Ripple broke below the $0.32 support overnight, triggering a long-term sell signal in our trend model and remaining relatively weak from a short-term standpoint. The coin is still trading above its prior bear market low, but it erased its September surge, and it looks ready to test the low near the $0.26 support. Above that another, weaker level is found near $0.28, with resistance levels ahead near $0.30, $0.32, and $0.3550, and traders and investors shouldn’t enter positions here.

Litecoin/USD, 4-Hour Chart Analysis

Litecoin got smacked lower today after triggering a short-term sell signal, and the prior bear market low couldn’t stop the rout, as the bearish long-term forces took control of the market. The coin remained on a long-term sell signal in our trend model despite the period of relative strength in November, and the odds continue to favor the continuation of the bear market. Traders and investors shouldn’t enter positions here, with primary support now found near $23 and with resistance ahead near $26 and between $30 and $30.50.

Monero/USDT, 4-Hour Chart Analysis

The bearish leaders of the sell-off continue to be under damaging selling pressure, with no sign of stability, and that is negative for the whole segment’s outlook. Monero broke below support together with the broader market and crashed below the $50 level, confirming the coin’s relative weakness. The short- and long-term sell signals remain in place in the case of XMR and the other lagging altcoins, and traders should stay away from the weaker coins until we don’t see signs of stability in the market.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 411 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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