BitCoin and the Futures:
I have to admit, at first, I was skeptical of crypto-currencies. Not because reading the price charts on them was hard but because of the fear that government could shut it down or intervene. As a trader I see price and price only. What is something trading for and where can it go next. The story of a stock or fundamentals, to me, don't matter and they never have.
As recently reported earlier this week the CME announced that Bitcoin futures were coming next year.
I'm excited for this. One because it helped this Bitcoin position reach over $7,000 and the futures on them should be extremely volatile which is great considering the past few years in the market have been extremely low volatility.
Earlier this year as Bitcoin continued it's meteoric rise toward $5,000 J.P. Morgan CEO Jamie Dimon called it a 'fraud' which cause it to lose value relatively quickly. Now to most, hearing the CEO of one of the worlds largest investment banks say this is generally concerning, even for me admittedly since he was a CEO who I followed.
The thing with Bitcoin, and all asset classes is this: You want to be buying when others are selling and selling when others are buying. If that sounds strange to you, it is. Why would the leader of a major bank say something like that? I'll leave you to draw your own conclusions however when Bitcoin sold off it presented a buying opportunity or a pullback as traders like to call it.
The image to the left is a current position on Bitcoin with a small position in Ethereum as well. Prior to that Dimon comments the entirety of the positions was near $50,000-$60,000 (I forget exactly) and it dropped significantly on his comments. So, what was the logical choice here?
Normally when trading stocks or options you want to scale out of trades. I talk about this in Remora Options. It's important because you lock in gains and keep some for the future.
So what changed here? Well the cost basis of the trade was lower, much lower, so that's number one. Second, the pullback was to a technical price level on the Bitcoin chart that said "this is support" buy more here.
This is the main difference in how retail traders and professionals think. Most sell when there's fear and never take profit when they're up on an investment. And hey, if you're thinking "Well this trade is up a lot and you're not taking profit" then sure, you're right. But with this trade, and all of them, there's a price target: $10,000 a coin.
Which brings me to my next talking point....
The bitcoin spot market has also grown to trade roughly $1.5 billion in notional value each day. This is huge. With all futures there's typically options that will accompany it which makes this even more exciting since this has yet to be released though I have to imagine it will be. When the news of this broke this week it caused Bitcoin to press to new highs and in my opinion, once open for trading, will get it to $10,000 + a coin and what will be a partial exit on the position above.
Scaling is important when investing. Leaving an entire position in and never realizing even partial profits tends to be a recipe for disaster.
The question will be for many is how will it trade? Will there be volatility in that market? My guess is there will be and I really think (as crazy as this sounds) that Bitcoin futures will surpass the average daily trading volume on the E-Mini S&P500 futures. This may be far fetched but the excited around Bitcoin and crypto currencies in general is massive. People who I know who normally don't follow the markets are talking about it and for them it's exciting where finance is typically seen as stuffy and boring. That to me is bringing in an entirely new demographic into the world of trading and crypto currencies have a ton of potential to be volatile trading vehicles.
Just like any other new frontier there will be the 'real deal' shops and frauds looking for a quick buck. I've already seen this in the crypto currency world with numerous ICO's (Initial Coin Offerings). What I want to bring to light here is what I mentioned above: Crypto currencies have a ton of potential to be volatile trading vehicles.
Does it matter if some of them will be 'frauds', sure, it does but there's many companies that are publicly listed that engage in fraudulent business practices and you can still trade them. In my opinion, it's much easier to make money when asset prices fall rather than when they rise. This too should be true with cryptos. The point I am making here is that I don't think the buying and hold of new ICO's is a strategy I will be getting into. What matters here is that Bitcoin will not be traded at the CME as a futures product which opens the path for other cryptos as well in the future. This brings us the potential to find market opportunity in the form of futures which are great for trading and hold a tax benefit over stocks.
All Wall Street is doing here is introducing another asset class to trade and as traders that's exactly what we'll do: Trade it.
I'm no expert in Crypto currencies at all but I know the key behind all of this is the block chain technology that supports it. Many people will make tens of millions of dollars out of this new boom but as a trade I'm just happy being able to have another asset class in an age of low volatility that will actually move again.
I hope you enjoyed this article and be on the look out for next year as I am almost certain we'll be introducing webinars and potentially training (once we test the futures with our money) on Bitcoin futures trading.
Don't forget to sign up for the webcast this Sunday.