‘Bitcoin derivatives, unlike gold and silver cases, is a good thing’
The above is a tweet from the excellent Jon Matonis who has been
following Bitcoin for Forbes since its inception with great
insight. I’m sure that his tweet referring to news that
institutions are now getting into the bitcoin game is giving some
bitcoin boosters a few heart palpitations. Why? The early adopters
of bitcoin like the fact that it is completely outside the
professional traders and hedgies of Wall St. and City of London, so
news that these guys have now discovered Satoshi’s baby is
worrying. The clue as to why I think these fears are overblown is
in the rest of Jon’s tweet. He makes reference to gold and silver
and how they are traded on futures markets. On one hand yes, this
is true, bitcoin derivatives are coming but I think we need to
understand why, unlike in the cases of gold and silver, this is a
To encapsulate my argument succinctly: the quoted price for gold and silver are derived primarily from derivatives markets and this will not be the case for bitcoin.
When I asked professor Antal Fekete on the “Keiser Report” recently, ‘what is the current cash price of gold,' he looked at me quizzically because, technically speaking, there is no real current ‘market price’ for gold. The price quoted for Gold and Silver comes from the Comex futures market and is more ‘implied’ than actual. This is why it’s so easy to manipulate the price of Gold and Silver on Comex. You can borrow virtually any amount of money you want at virtually no cost and sell futures contracts all day until the price drops to the price you want (naked short-selling). It takes approximately 50 times more buy orders to move the price of Silver up $1 than down: these are all the Wall St. banks dumping naked shorts all day to keep the price low - as a favor to the Fed - who in turn keeps rates near zero - citing the ‘deflation’ apparent by the low cost of things like Silver.
Bitcoin derivatives, in my opinion, will not suffer a similar
fate because price discovery is set by an actual supply and demand
market place. As I noted in a previous article, if the intention of
Wall St. is to disrupt bitcoin before it disrupts the Fed the ‘soft
underbelly’ of vulnerability for bitcoin appears through attacking
exchanges through patent law (claiming that the patent to make
virtual markets belongs to Wall St.).
So what’s the upside of bitcoin derivatives?
I think the presence of institutional players will increase the capitalization of bitcoin and get us closer to $10 billion and beyond. (There’s no reason why BTC’s market cap can’t equal to Apple for example with a market cap of $400 billion)
Bitcoin supporters should welcome this development.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.