The main difference between the 2017 rally and the current one has to do with the level of institutional investments. Back then, there were no Bitcoin derivatives and now we see the CME reporting 6.069 in open contracts and $1.7 billion notional value.
Following some short-term weakness that emerged around $13,800, Bitcoin seems to be back on its way up as the month of August continues to unfold. Solely in 2019, the largest cryptocurrency on the planet surged more than 200%, a movement that brings back memories of late 2017.
Still, even though the rally exceeded all expectations, some things are different and the main reason why Bitcoin enjoyed such a great return so far has to do with the derivatives market.
It’s all about futures contracts
In addition, the ICE platform Bakkt had already received approval to start testing Bitcoin futures during this month. LedgerX is another important player who will join the ranks, as it won approval from the US Commodities Futures Trading Commission (CFTC) to trade physically-settled futures and swap contracts in Bitcoin.
We have this avalanche of new instruments related to cryptocurrencies that continues to fuel the rally. People are now able to trade with TDS Capital and other platforms, without having to deal with traditional exchanges anymore.
As a Bitwise report suggested, 95% of the volume declared by exchanges is suspicious, which raises concerns about the reliability and safety people could get when transacting crypto there. In the case of Bitcoin derivatives, trading is done under the supervision of a financial regulator and that’s the main reason why institutional investors had been active there.
Companies like ErisX and SeedCX could also get the green light from US regulators to trade Bitcoin futures, which is why the rally seems to be intact. Although the market expected at least a Bitcoin ETF this year, chances for that happening are very low.
However, with so many options available to get involved in the Bitcoin market, with compliance to regulation, the market’s attention had switched to the positive news and momentum is still not showing significant sign of weakness.
Despite optimism related to new Bitcoin derivatives, the bigger picture continues to remain unstable, since the gains we saw this year are not backed by any major fundamental change. It will be interesting to watch whether Bitcoin will manage to hold at very high levels for months in a row, or whether it will prove once again its speculative nature and weaken significantly.