‘There’s no such thing as a safe way to be’: Investors weigh in on bitcoin futures
A recent announcement from the Federal Reserve about bitcoin futures on its website is a sign the central bank has decided to loosen its hold on the cryptocurrency.
While it may be too soon to tell whether the US Federal Reserve will eventually start accepting bitcoin futures, it is a clear indication that the central banks decision will not impact the broader financial markets.
In the past, the US has been a leader in the global cryptocurrency market.
“There’s not a whole lot of risk associated with bitcoin,” says Matthew Green, senior market strategist at RBC Capital Markets.
That is because the currency’s value is tied to the US dollar, which is determined by the Federal Open Market Committee, which sets the exchange rate for the US stock market.
Bitcoin’s value also depends on the stability of the US economy.
There is no central bank that is guaranteed to have its gold reserves and other assets protected, Mr Green says.
This makes bitcoin’s volatility a riskier asset class for investors to own than a currency like the Australian dollar, he says.
In other words, the volatility of the cryptocurrency could cause a greater loss of capital for investors.
Bitcoin futures on the US exchange market currently trade at $2,859 (US$6,829) per coin.
That is about three times higher than the $1,957 ($2,400) per bitcoin that the Federal reserve expects to issue this year, according to the Fed’s statement.
The price of a bitcoin has fluctuated dramatically over the past two months, according in part to speculation about the Federal central bank’s plans to raise interest rates and boost inflation.
The price peaked at $1.2 million at the start of the year, but fell to around $300 last month, before rebounding slightly to $2.4 million at present.
Some investors believe that the bitcoin market could potentially lose around $1 billion in value if the Fed decides to lift interest rates again, but this could be too much to absorb, according David Turek, chief investment officer at asset management firm Macquarie Capital.
It is not just the central bankers decision to loosen the hold on bitcoin, but also the fact that it has occurred in such a short space of time.
“It has just taken the momentum of the past couple of months to really take hold of the market,” Mr Turelak says.
“If it is not lifted, it could easily have a very negative impact on the market and on the outlook for bitcoin.”
I don’t think the markets have the stomach for a bear market at this point.
“Mr Tureh says he does not see any reason why investors should panic, as the market is unlikely to fall below $2 million.
But he does believe that if bitcoin’s price rises, the value of bitcoin could be negatively affected.
And he believes it is very likely that some investors will panic, saying that the Fed could not make such a huge change to the market without risking further price swings.”
That would be a real risk, and I would be really wary of that,” he says, adding that investors should not panic.
He says that the market’s volatility is likely to remain stable for a few years, and that a price correction could occur.”
We could see that there’s a very large number of people buying into bitcoin and, as such, the market could end up very volatile.
“Read more about bitcoin: Bitcoin futures offer opportunity for investors, experts on US economy In an interview with CNBC last month Mr Turenk said that a bitcoin price of $10,000 per coin would make the currency less appealing for a wider segment of investors.”
The reason why bitcoin is appealing is because there are so many people that are interested in this currency,” he said.
What’s the catch?
The Federal Reserve announcement comes as the US is set to announce a number of policy changes that will affect the way the country uses money.
Specifically, the Federal government is expected to raise the minimum wage to $10 an hour by 2020, the maximum daily limit on cash withdrawals to $200 and the limit on the size of bank accounts to $500.
Mr TUREK believes the move could have a major impact on bitcoin’s market value.
According to Mr Turenlk, if the Federal Government increases the minimum wages to $20 an hour, then the value per coin will go down by about $2 ($3.6).”
If the minimum hourly wage was $10 and the maximum was $20, then bitcoin would fall by around $3 ($4),” he says