Bakkt, Bitcoin, And Chicken Nuggets
By KidKrypt0 on ALTCOIN MAGAZINE
As another Bitcoin futures market launches, I think this is a good time to revaluate what futures markets offer. A popular narrative circulating was that the launch of Bakkt, a physically settled futures market would instantly propel Bitcoin into a bull market like no other before.
Taking a step back and looking at the larger picture I do believe the launch and growth of Bitcoin futures markets will play a crucial role in the development of the larger ecosystem but not from the viewpoint as a retail or institutional investor.
To help illustrate this point I want to take a look at what I see as one of the most brilliant achievements of billionaire investor and hedge fund manager Ray Dalio, and his role in the McNugget. While today we take the McNugget for granted, in the early 1980s the McDonalds staple dish almost never made its market. At the time, the price of the poultry market was far too volatile and immature for the company to make any long-term deals to purchase chicken on the large scale necessary to stock their stores. The brilliant Dalio was called on to find a solution. ingeniously, Dalio understanding that the primary inputs into poultry (soy meal and corn) would almost completely mirror the price of chicken, went on to create synthetic soy meal and corn price futures. These futures would allow McDonald’s to hedge the risk of massive price movements on the chicken while allowing poultry farmers to get a guaranteed price on their chicken for the short term future. In constructing these synthetic futures Dalio made it possible to buy the necessary amounts of chicken for the McNugget while also providing farmers with the ability to better account for expenses and future costs in a revolutionary fashion.
I chose this example to show that to better evaluate what futures markets offer you have to look past the speculation aspect of futures. Futures markets in a volatile and young asset like Bitcoin provide a cushion that softens uncertainty that is prevalent in the calculations of any large scale business operation. The effect of futures on the price of Bitcoin has yet to be decided, but what I do know is that as with any volatile market, being able to provide options to mitigate risk and hedge uncertainty is important for attracting large scale investments and business development. So today I ask you what will our McNugget be? How many entrepreneurs and corporations have the next billion-dollar Bitcoin product or service waiting to launch but can’t get past the volatility and risk in the relatively immature Bitcoin market? So while the launch of Bakkt futures didn’t ignite the price of Bitcoin, maybe it has gotten us one step closer to our own McNugget.