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Will Bakkt Futures launch & low HV bring a Bitcoin revival?

Ask anyone who got carried away by the euphoria of Bitcoin buying frenzy at the end of 2017 and got in right when it was peaking & they would say it’s been a terrible year for Cryptocurrencies with some digital coins losing close to 80% of their value. Bitcoin has been slowly grinding lower all year-long dragging the Alt. coins with it. And while there is merit to this statement looking at the price action of the digital coins but there have been lots of positive developments during the year, which to me reinforce that the digital currencies are showing signs of maturity and settling down. Two biggest issues on which Cryptos have received a lot of heat have been of Scalability & Volatility followed by a lack of acceptance by the Major players in the Financial industry.

While the prices continued to plummet for the most part of 2018, most of these issues continued to get resolved. Let’s take a look at some of the collective Crypto developments throughout the year.

  • Bitcoin Futures started trading on the CBOE in Dec. 2017 as a first sign of entering the mainstream financial markets. Although some people associate this move with the downfall of bitcoin given the speculative nature of Futures. Earlier this year BCH & ETH Futures started getting trading too on UK-based Crypto Facilities followed by BitMex (a peer-to-peer platform) which added leveraged futures for ETH, TRON & EOS apart from BTC.
  • There has been innovation in other trading products as well with the invent of ETO, ETF, ETN, regulated Stable coins, DAR, HDMS coins and a host of others.
  • Addressing the scalability issues: Bitcoin implemented the Lightning network in March & added Liquid network recently as sidechains, Ethereum is working on the Constantinople upgrade while “Bullet proof” upgrade to Monero brought down the transaction cost from 60 cents to 2 cents. All these upgrades have not only helped in speeding up the respective networks respectively but have also brought improved security, reliability & a significant reduction in transaction costs.
  • More recently two major partnerships between TRON & Baidu and Qtum & AWS (Amazon Web Services) were announced to bring Cloud based services to Blockchain
  • The Emergence of highly scalable blockchain networks like Red Belly, Splend & Elixxir
  • Cross-border payment systems by RippleNet & Stellar based BWW
  • Dash replacing the fiat based currency (Bolivar) in Venezuela

And I can go on, but you get the picture… the blockchain based ecosystem of the Cryptocurrencies is taking roots. The real-life use cases are plenty. The thorny issue of a Bitcoin ETF is still pending with the U.S SEC (Securities & Exchange Commission) — this is perhaps the most looked forward to event since everybody expects an approval would be a game changer for the Crypto kingpin. However, an equally important announcement has come from the Intercontinental Exchange (ICE) for the launch of Bitcoin Futures through its Bakkt cryptocurrency platform. This is important for a number of reasons.

  1. ICE is the same company that operates NYSE (New York Stock Exchange)
  2. Futures will be backed by actual physical bitcoin in your account
  3. The platform is regulation compliant adding credibility
  4. Futures would be available to institutional investors bringing wider acceptance
  5. The contracts would be available in U.S. dollar, British Pound and Euro
  6. And finally the timing — just before the holidays & more importantly Bitcoin’s ETF approval is expected around the same time which could bring a huge boost to Bitcoin.

Finally, let’s talk about Volatility. This might not be good news for those who cherish the volatility in Cryptocurrencies specially Bitcoin to make a quick buck. According to a recent report (figure above) from the CBOE Global Markets which compared the 20-day historical volatility (HV) of Bitcoin with some the other major stock market movers. As it is evident BTC has one of the lowest volatility. Bitcoin also had the lowest HV among its Top 5 peers. This is a sign of maturing of the Crypto markets with the speculators being slowly flushed out. As per the report, the standard deviation of the Bitcoin has also dropped from a high of a high of +/- 42% in January to just +/- 7.3%. This is great since volatility is considered a major hindrance in the adoption of the Cryptocurrencies.

The naysayers and skeptics might not agree with me, but I remain hopeful that Cryptos and the decentralized technology have a bright future and they will be the new financial frontier as this digital transformation gathers pace.

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Originally published at www.datadriveninvestor.com on October 24, 2018.