Nasdaq is the world’s second-largest exchange
Nasdaq, the world’s second-largest exchange, becomes the third and most significant yet to plan US derivatives contracts linked to the headline-grabbing digital currency.
The volatile cryptocurrency dropped more than 18 percent from its record $11,000 (£8177.62) high on Wednesday night but has rebounded to $9,882.81 (£7347.08) at time of press.
Bitcoin hit the heady height of $11,000 on Wednesday less than a day after passing the $10,000 mark and has increased more than 10-fold in value so far this year, prompting concerns of a bubble.
As the legitimacy of Bitcoin continues to creep towards the mainstream, CME Group, the world’s largest derivatives exchange, and CBOE Holdings, have both said they plan to launch futures products based on Bitcoin this year, pending regulatory approval.
Nasdaq is considered a part of New York’s critical infrastructure
This is a huge stamp of approval for Bitcoin and the next big step on the road to its global adoption
Nasdaq’s product will launch on Nasdaq Futures (NFX) potentially as early as the first few months of the 2018.
The New York-based exchange has told market participants that their futures product will be different to the the CME and CBOE offerings by changing the way Bitcoin is tracked at over 50 various global exchanges.
Importantly the Bitcoin contracts will clear with US Treasury bureau, Office of the Comptroller of the Currency.
Nasdaq has teamed up with New York-based money manager VanEck to develop the futures contract.
Bitcoin hit $11,000 earlier this week but has since slipped down
The sheer amount of exchanges from which the price is taken allows Nasdaq to offer a better market price and Van Eck, a source told Express.co.uk,have developed a Bitcoin index tool called a “Liquidity Penalty Factor” to help increase Bitcoin’s transparency that can often be lost in a thicket of online misinformation.
With so much uncertainty around Bitcoin the tool is designed is to guard against posting prices on various Bitcoin exchanges to influence and manipulate the price, as such lowering risk and increasing confidence.
Alessio Bruni of Bitcoin wallet provider Luno.com said Nasdaq’s involvement will bring more legitimacy to digital currencies.
Mr Bruni told Express.co.uk: “The vast majority of Bitcoin is traded on various platforms, which are incorporated in jurisdictions where Bitcoin isn’t currently regulated.
“Bringing Bitcoin (or Bitcoin futures contracts) to larger, regulated exchanges like Nasdaq, will ultimately bring more legitimacy to digital currencies and with it, an increase in institutional investor activity.
Nicholas Gregory, CEO of CommerceBlock is similarly optimistic, telling Express.co.uk: “This is a huge stamp of approval for Bitcoin and the next big step on the road to its global adoption, something I am convinced is inevitable.
“Future contracts are crucial to companies who want to trade and execute international settlements in Bitcoin without having to worry about the value of the digital currency crashing during the transaction. So firms can use these Nasdaq contracts to hedge that risk.
Mr Gregory says that Nasdaq’s offering will complement futures contracts that already exist and the announcement is clearly designed to help speed up Bitcoin’s mass adoption, adding: “They are going to go the extra mile on what is known as price discovery. This is where they work out what the currency’s value is based on the prevailing attitudes of buyers and sellers at any given time.
“They’ve decided to use dozens of data sources and this is going to help reduce the sort of volatility that we’ve seen over the last few days, with the price reaching nearly $11,500 before dropping as much as 21 percent.
“This is good because volatility doesn’t necessarily breed confidence.”
the legitimacy of Bitcoin continues to creep towards the mainstream
Mr Bruni of Luno.com credits the benefits of allowing investors to take a bet on (or against) Bitcoin, without needing to actually own and secure the digital currency themselves.
“We expect more of the current financial industry — hedge funds, institutional and retail investors, regulated exchanges and so on — to get involved in digital currency as the fledgling industry matures and as more of their customers demand access to it, he adds”.
However, according to Mr Gregory the main advantage of Nasdaq’s move into the Bitcoin futures market be to help simplify things for those who want to get involved in the market but who, “may have been put off so far by the complexities of how the technology works”.