The planned introduction of bitcoin futures contracts at CME Group Inc., Cboe Global Markets Inc. and Nasdaq Inc. will make it much easier to bet on a decline. Hedge funds, which have largely stayed on the sidelines, are waiting for the Chicago Mercantile Exchange’s futures market to open for a fresh opportunity to bet against the cryptocurrency, according to more than a half dozen people trading the assets.
“The futures reduce the frictions of going short more than they do of going long, so it’s probably net bearish,” said Craig Pirrong, a business professor at the University of Houston. “Having this instrument that makes it easier to short might keep the bitcoin price a little closer to reality.”
This potential that bitcoin may fall could lead to massive numbers of investors taking short positions.
According to a recent article from Bloomberg, the massive pressure for short selling may come from hedge funds wanting to take advantage of what they see as the greatest shorting opportunity in history. According to cryptocurrency investor Lou Kerner, a partner at Flight VC:
“[It may be] one of the greatest shorting opportunities ever. You have a lot of zealotry, and a lot of people, including me, who think it’s the greatest thing to ever happen in the history of mankind. You have a lot of people who think it’s a bubble and a Ponzi scheme. It turns out both of them can’t be right.”
Crash or squeeze?
Whether long or short, however, the addition of Bitcoin futures into the marketplace will have a profound effect in bringing mainstream money into the picture. No matter what happens with the price, the general Bitcoin ecosystem should stabilize substantially.
However, should a large amount of money move into the short position, and the price rise, it could result in the greatest short squeeze of all time as well. A short squeeze occurs when a heavily shorted stock or commodity rises in price, forcing short contract holders to ‘squeeze’ out of their short positions at a loss and driving prices further up with the increased pressure.
Read more on the bitcoin futures contracts at CME Group
Do you think trading against Bitcoin using Futures is a wise idea by Hedge funds?
“It’s only a speculation that the Chicago Mercantile Exchange’s futures market would open a fresh opportunity to bet against Bitcoin Hedge funds, what if the futures market does not lead to a fall in bitcoin’s value”