NOTE: This isn’t investment advice. This is some insight into what could be in store for Bitcoin in futures trading.
There is a general sentiment in social media right now that futures trading starting Sunday night will somehow immediately cause a Bitcoin crash. That, after this crash bankers will greedily buy up Bitcoin at $5k while everyone panics. Thus, the assumption is that the safest move is altcoins and fiat and then buy back into Bitcoin when its much cheaper (a strategy that has almost never worked in the history of Bitcoin save a few days or weeks here and there).
I would not bet on this happening and I disagree with the logic (if we apply it to Sunday forward; going to alts or fiat was a solid strategy yesterday, Friday, but that ship has likely sailed).
First, as a rule of thumb. When everyone is gloomy and panicked, buy. When everyone is manic, start taking profits incrementally. The general sentiment about Bitcoin is almost always wrong. In other words, being a contrarian tends to work well with Bitcoin.
The reality is that Bitcoin is about to “enter the mainstream” (to quote Bloomberg). While one shouldn’t dismiss a crash or rule out top alts (I pray for us all that they are taken along on Bitcoin’s next bull run)… betting against Bitcoin along with everyone else has historically been a bad bet (I mean in the long term; short term is volatile and we see 20%+ corrections often), while holding through the FUD and buying the dips has generally been a good bet.
A very likely scenario is that anyone who tries to short Bitcoin (by betting on a lower future price) will likely get hammered out of the gate. A ton of new money from normal people just poured into Bitcoin due to the recent price surge, that was largely what the last increase was about, now another pool of money is about to pour in, this time from the traditional market investors.
NOTE: Futures contracts are generally settled in cash. However, not always. Also, those who buy futures could very well end up wanting to hold Bitcoin as a hedge. Plus, anyone making big gains on Bitcoin futures will be in the news and the headlines will read “Bitcoin.” I.e. there is a lot of Bitcoin and money coming up here.
It seems not only lame, but rather unrealistic to bet against the momentum here.
Sure, the bears might win at some point in the not too distant future… but betting that they win day 1 after Bitcoin just went through its run-of-the-mill 20%+ correction essentially expects all trends to be broken and for the Bitcoin bears to pull an epic victory off on day 1 (also, it implies that betting on a price of Bitcoin on a future date will have an immediate negative effect rather than have its effect when that date occurs).
It is hard to see how that works.
Futures trading means people will bet on the future price of Bitcoin, some will bet higher, some will bet lower, they will trade contracts to buy and sell at a “future” date to represent this. If those who bet lower get burned, they not only will lose out on fiat, but they will be obligated to… buy Bitcoin at a high price.
Cool thing is, Bitcoin will likely keep going up in price, thus those who bet on high prices (and don’t just pay out in fiat but actually end up with Bitcoin) will likely win eventually even buying at a premium (just ask GBTC).
In other words, a bunch of money is about to pour into Bitcoin one way or another…. and I don’t see how the price goes down given that.
All that said, the reason one its essentially betting here (rather than just cashing a check or looking at a crystal ball) is that the future is unknown and this is all a bit of a gamble. Thus, if you are smart you won’t be betting the house on Bitcoin going up or down, you’ll be diversified in the coins you like, with a small portion of your investable income, to enjoy the ride…. and of course you’ll have some fiat on hand just in case the bears win and you need to buy up those mythic $5k Bitcoins alongside Jaime Dimon.
For more reading to understand what is up with Bitcoin futures, read the links below.
TIP: Not every broker is going to allow Bitcoin futures trading (TD Ameritrade is one that will, many others won’t… which is super lame). Make sure to call up your broker and give them a hard time for being late to the party. Next stop, fingers crossed, is another ETF to compete with GBTC. This one choice thing is getting absurd.