All the major crypto currencies took a nose dive yesterday and earlier today following the large gains made on Friday and Saturday morning. There seems to be a major correction in all the markets at the moment with Ethereum, Litecoin and Dash suffering considerably. All three posted losses of between 6 and 10% this morning with Litecoin practically back to the same levels that it was before the slump. Bitcoin Cash also went in the opposite direction after posting a 10% gain on Friday and is currently down to historically low levels of around $1200. But the main loser was Bitcoin which even traded at $12500 after having reached highs of $18,000 on Thursday. This is undoubtedly due to some selling pressure on the markets as traders take their profits.
Big banks are not rushing to facilitate investment in the first bitcoin Futures market that goes live on Sunday. Citigroup Inc. and Bank of America Merrill Lynch have told customers they will not provide access to the cboe bitcoin futures that goes live on Sunday, according to The Wall Street Journal.
Goldman Sachs Group Inc. which is the U.S.’s largest futures broker, will reportedly only give access to certain customers. ABN Amro Group, similarly, will handle trades for a select group of clients, according to an email.
Societe Generale SA and Morgan Stanley have not finalized their approach, according to sources interviewed on Thursday.
Banks Play Key Role
For many investors, banks play a key role in providing access to new markets.
Banks’ hesitation could compromise the hotly anticipated bitcoin futures launch, which cryptocurrency advocates see as a key step in cryptocurrency’s evolution. Cboe Global Markets Inc. plans to launch its bitcoin futures on Sunday less than two weeks after regulators approved the launch. CME Group Inc., also in Chicago, will launch bitcoin futures on Dec. 18.
Cboe did not release a list of banks that will handle its bitcoin futures, citing confidentiality, but said the contracts would launch as planned.
Bitcoin topped the $16,000 mark on Thursday, a $4,000 gain in one day.
Wall Street Faces Choices
Bitcoin’s surge has made it hard for many on Wall Street to ignore it, despite concerns over its connections to illegal activities and its shaky legal status. Banks want to manage their risks but cannot ignore investor interest.
A trader must open an account with a brokerage, which could be liable for losses. Many brokers are struggling with a way to handle bitcoin futures risks due to its volatility. Banks serve as a buffer to counterparties in their role as futures brokers.
Brokers, in evaluating bitcoin futures, must consider their relationships with clients and decide if they should charge higher fees to “backstop” bitcoin futures trades. This is a difficult task considering bitcoin’s volatility.
Exchanges set minimum margin requirements traders must post in cash to enter a futures bet. Hence, exchanges have faced the same challenge. Cboe said on Monday that its clearing house raised the minimum from 33% to 44% on account of bitcoin’s volatility over the past few days.
CME’s minimum is 35% on contracts. The exchange could adjust this level in response to volatility, a CME spokesperson said.
Typhon Capital Management, a hedge fund firm, will trade Cboe’s bitcoin futures in one of its funds. James Koutoulas, CEO, said only three of 12 brokers the fund deals with have given them the approval to trade bitcoin futures.
Bank clients include institutional investors and larger hedge funds. Such players could find it hard to access Cboe’s futures, which would undermine trade activity in Cboe’s new market, said Craig Pirrong, a University of Houston finance professor.
Small Brokers See Opportunity
The reluctance of some banks has created an opportunity for smaller brokers such as Wedbush Securities Inc. and Phillip Capital Inc. to offer access to bitcoin futures.
Bob Fitzsimmons, managing director at Wedbush’s futures arm, said this window has created an opportunity with customers the company has been courting for several months.
Interactive Brokers Group Inc. will provide customers access to Cboe’s bitcoin futures for “long” traders betting on a bitcoin price increase, according to CEO Thomas Peterfly. This would protect the brokerage should bitcoin futures skyrocket and cause possible losses among “short” traders betting on a price drop.
A Goldman Sachs spokesperson said that given that bitcoin futures is a new product, the company is conducting due diligence.
Brokers Group Raises Concern
The FIA, which represents big futures brokers, said they are concerned about the risk of bitcoin futures.
FIA told the CFTC that the regulatory agency did not permit for proper public transparency and input in examining Cboe and CME’s bitcoin futures proposals.
A CFTC spokesperson said the agency agrees bitcoin is a commodity not like any other the commission has addressed.
According to RT, analysts expect the number of bitcoin users to reach 200 million by 2024, within the next seven years, given the current exponential growth rate of bitcoin.
5 Million Unique Users in March
A Cambridge study conducted by Dr. Garrick Hileman and Michel Rauchs in March of 2017 revealed that the number of active users of bitcoin wallets was in the range of 2.9 million and 5.8 million.
However, since then, proportional to the market valuation and price of bitcoin, the cryptocurrency’s user base has grown at a rapid rate. Coinbase alone, the global market’s largest bitcoin brokerage and wallet platform, serves more than 13 million active users. In November alone, Coinbase recorded 1.2 million users.
Major regional bitcoin exchanges such as Japan’s Bitflyer and South Korea’s Bithumb also have nearly one million users on each platform.
If the hot wallets or bitcoin addresses on bitcoin exchanges are included, the number of unique bitcoin users is likely over 10 million.
Driving Factors of Bitcoin Mainstream Adoption
Essentially, with 200 million active users, bitcoin will penetrate the mainstream market, and the vast majority of investors and casual consumers will embrace bitcoin as a robust store of value and a digital currency.
The listing of bitcoin futures by CBOE and CME in mid-December will drive adoption of bitcoin in the traditional finance market, amongst large-scale institutional investors, retail traders, hedge funds, and investment firms. As tens of billions of institutional money move into the bitcoin market, casual consumers and investors will follow, creating a domino effect.
Then, more financial institutions, financial service providers, and fintech platforms will begin providing services around bitcoin, improving the usability and liquidity of bitcoin. Already, in November, massively popular and widely utilized fintech application Square integrated bitcoin, allowing users to store, purchase, or sell bitcoin.
Shinhan, the second largest commercial bank in South Korea and an influential financial institution within the local finance industry, has begun the testing phase of its bitcoin vault and wallet services, as CCN reported.
“Shinhan is testing a virtual bitcoin vault platform wherein the private keys of bitcoin addresses and wallets are managed and issued by the bank. The bank intends to provide the vault service for free and charge a fee for withdrawals,” said a Shinhan representative.
Lastly, as bitcoin solidifies itself as the leading global store of value, an increasing number of unique and active users will begin utilizing the cryptocurrency as a day-to-day currency and a replacement of fiat currencies.
However, for users to embrace bitcoin as an alternative to fiat currencies, the underlying scaling issues of the Bitcoin blockchain network must be solved. Through second-layer infrastructures such as Lightning, in the long-term, bitcoin users and businesses will be able to process micropayments, or transactions with substantially lower fees, to settle payments for goods and services.
Once bitcoin service providers and exchanges integrate Lightning and other potential second-layer scaling solutions, more users will be able to utilize bitcoin to settle small payments as well as large payments, with the former being processed on Lightning channels and the latter on-chain, with higher fees.