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Cryptocurrency Market Matures

Summary

The crypto market changes against the backdrop of a wider adoption of cryptocurrencies.

Despite different views of fiscal and legal authorities on cryptocurrencies, daily warnings of possible scams and the fact that most of us are still paid fiat wages, it is obvious that, with the introduction of Bitcoin, we have seen the birth of an alternative to national currencies. In the meantime, cryptocurrencies have attracted enough public attention, so that loud names in the capital markets space cannot neglect them any longer. Even central banks and governments express their views and share personal sentiment about the future of cryptocurrencies. Then they change their views, back and forth, over and over again, but it only contributes to the hype.

With omnipresent Goldman buying Poloniex (Circle is Goldman since it is Goldman-backed) the so called whales, whom no one has ever seen, have finally surfaced. Barclays, which is definitely not a passive observer in the FX trading market, considers launching a crypto trading desk. Obviously, quite some of the fiat trading unit expertise can be applied and re-used on the fly – just replace “USD” by, say, “BTC” in trading algorithms. Famous surnames that have sufficient funds to shake folks’ confidence in central banks’ capability of fulfilling their national currency stability mandates have lately shown their appetite for bitcoin and alts as well.

A wider adoption of cryptocurrencies boosts demand and supports growth of the sector as a whole. Although it is not clear when we see the cryptocurrency market capitalization hitting $800 bn again (and that’s roughly 1/10 of the total gold value in the world), it is certain that bitcoin and alts are here to stay.

Trading would not be different from buy-and-hodling if no selling came after buying, and vice versa. News and fluctuations in supply/demand influence are traditional drivers of exchange rates. The introduction of cryptocurrency futures, however, armed so called short-sellers with a powerful lever to initiate sell-offs in the underlying market, thus exerting extra downward pressure on the targeted exchange rate artificially in a sense. The same holds for ungrounded demand boosts. Since analysts estimate that the total size of the derivatives market (according to Investopedia, whopping $1.2 quadrillion) exceeds the total world GDP by an order of magnitude, it is highly likely that derivatives are doomed to become the dominant source of influence on the price of the underlying asset in the initially free from some fiat problems cryptocurrency space.

Loud names and institutions expressing their views on bitcoin, global banks joining cryptocurrency trading, CME officials promising to “…tame it [Bitcoin] into a regular type instrument of trade with rules" – all this adds up to a strong evidence that the cryptocurrency market is mature enough to take its small yet highlighted seat in the global fiat marketplace. The introduction of exchange-traded derivatives is the strongest argument supporting this statement, in my view.