The world’s second largest stock exchange, NASDAQ is planning to launch futures contracts for Bitcoin by 2018. This will be the step forward to be part of blockchain revolution.
Bitcoin & Nasdaq
Bitcoin is a digital currency with no central authority or banks to manage the transactions and the issuing of bitcoins are carried out collectively by the network. Blockchain is the the technology behind the digital currency bitcoin. The dollar value of bitcoin has multiplied by 10 since the beginning of the year, and by 30,000 since January 1st, 2011.
On the other hand, Nasdaq has about 32,000 companies listed and operates 25 markets including one clearing house and five central depositories which offer trading and market services across multiple asset classes. Nasdaq has been at the forefront of the blockchain revolution.
In 2015, Nasdaq had unveiled the use of its Nasdaq Linq blockchain ledger technology to successfully complete and record private securities transactions for Chain.com, which is the inaugural Nasdaq Linq client. Further in May, Nasdaq and Citi had announced an integrated payment solution using a distributed ledger to record and transmit payment instructions based on Chain’s blockchain technology. The technology overcomes challenges of liquidity in private securities by streamlining payment transactions between multiple parties.
On the grounds of sustainability, Bitcoin is considered as a pure bubble, an asset with no intrinsic value. Coinbase is the leading U.S. website for buying and selling bitcoin. However, some services are unavailable for some customers and struggling to keep up with the growing demand.
Further, there is not enough liquidity from the market making to handle large size transactions and is one of the most difficult markets to trade because of the volatility. Everything is sped up by 10 times. Moreover, the bitcoin market has no big firms that would step in to buy when the price dropped sharply to effectively support the price. The technological advances can and will improve the efficiency of financial transactions.
Possible Impact of trading Bitcoin Futures Contracts on NASDAQ
The trading of Bitcoin Future Contracts is expected to improve the liquidity of the digital currency and reduce the volatility in the market. Further, the trading of bitcoin will make the market smooth and more mature. The investors can bet on the rise and fall of the bitcoin in real time. NASDAQ can handle big size transactions and reduce the outages at online exchanges, that have earlier led to selloffs in cryptocurrencies.
Moreover, the cryptocurrency is extremely volatile and susceptible to major dips as it had fallen by at least 25 per cent on three separate occasions in 2017. Additionally, the analysts’ expect support for bitcoin at around $8,500 to $9,000, followed by $7,500. Fundstrat has a mid-2018 price target for bitcoin of $11,500. Meanwhile, Chicago’s CME Group also said that it would begin providing futures contracts on Bitcoin too.
For Nasdaq, the use of distributed ledger technology could enable savings for the entities involved by reducing duplication of processes, settlement time, collateral requirements and operational overheads. This could minimize the need to set aside financial resources to cater to counterparty risks and achieve higher anti-money laundering standards and reduced risk exposure.