A cryptocurrency asset manager warned that the rise of derivatives markets could threaten the tendency for Bitcoin to pump after the halving.
The introduction of bitcoin derivatives has skewed the pricing mechanism of the top cryptocurrency, analyst says. In this environment, theres no guarantee that the upcoming bitcoin halving will have a positive impact on price. Image: m
Bitcoin Asset manager claims most firms looking to speculate on bitcoin will use derivatives market instead of the underlying asset.
The market share of physical oil compared to oil derivatives plummeted when futures trading was introduced.
Financialization of bitcoin will distort its innate pricing mechanism. Dont count on a halving pump in 2020.
The tendency for bitcoin to multiply in value following regularly scheduled halving events should not be relied on in 2020.
Thats according to a cryptocurrency asset manager who warned the bitcoin derivatives market may have wreaked havoc with BTCs traditional pricing mechanisms.
Meltem Demirors, who oversees $1 billion worth of assets at CoinShares, said the introduction of derivatives has shifted focus away from the underlying digital asset.
According to Demirors, the bitcoin derivatives market will pull focus away from the underlying market to the extent that BTCs halving pump could be affected. Source: @Melt_Dem, Twitter
Demirors says derivatives trading removes the ability for producers of a given product to set prices. She points to theinverse correlation between the rise of oil futures, and the steady decline of physical oil production.
derivatives markets are a strange animal. Lets take oil. This chart s happened to oil markets over the last 20 years. Derivatives dominate trading. Most firms trade paper contracts to speculate on the price of oil. The market is driven by speculation.
Worse still the success of bitcoin as an investment vehicle may be the very thing that decalibrates its price-to-value equilibrium. Ifbitcoin becomes financialized as Demirors warns, it loses any and all factors which once differentiated it from its fiat counterparts.
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Regardless of the long-term effects of bitcoins burgeoning derivatives market, one thing thats certain is the tendency for paper contracts to siphon trade volume away from the asset in question.
With just under 150 days left before the next bitcoin block reward halving, is the situation really as bleak as Demirors suggests?
As one helpful Twitter user pointed out, the introduction of a gold futures market in the 1970s coincided with a massive bull run. The price of gold surged for an entire decade, resulting in an all-time high which still stands to this day.
The launch of a gold exchange traded fund (ETF) in 2005 also coincided with a bull run for the asset.
Other factors beyond derivatives trading will also play a part in shaping the value of bitcoin in the coming years.
Some view the steadyshake-out of weak miners from BTCs production as a positive sign for its future price.The reasoning being that small-scale miners are more inclined to dump their mined BTC for profit. However, this has the side-effect of further centralizing bitcoins production process into the hands of the resourceful few.
Others claim the halving price pump will arrive before the day itself, asminers scoop up BTC to sell later. This could result in a strong price increase in the lead up to the halving. But that would be followed by a stunted, or delayed, reaction to the halving itself.
Greg Thomson is a freelance journalist covering the cryptocurrency and blockchain beat. He contributed to numerous crypto news outlets before joining CCN and Hacked in 2018. Based in Glasgow, Scotland. Reach him directly , or Tweet at @gregthomson88.
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