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Can Institutional Money Tame the Volatile Bitcoin Price?

by on December 4, 2017
 

Bitcoin has made a lot of media headlines throughout 2017. Its spectacular price increase has not gone by unnoticed by any means. Now that institutional investors get exposed to Bitcoin futures, things will only get more interesting. Whether or not this is a positive or negative development, remains to be seen, though.┬áSome experts predict this institutional money will ‘tame the Bitcoin price rally”.

Exposing more people to the Bitcoin price is always an exciting development. It would be better to see those people buy BTC directly, but you can’t have your cake and eat it at the same time. Institutional investors have been watching the Bitcoin price movement as of late. They want exposure to these fluctuations without buying cryptocurrency. Futures contracts are the perfect tool to please everyone. Various financial institutions will offer such contracts in the very near future.

Institutional Money and Bitcoin

At the same time, this will undoubtedly lead to more price volatility. Bitcoin doesn’t have a reputation for being stable in the price department. In fact, it has some of the most volatile price swings in all of finance. With these futures accessible by a lot of mainstream investors, things may look very different in a year from today. However, there will be some less pleasant consequences as well. It is possible we will see so many hedges against Bitcoin the price will eventually drop by quite a lot.

Another option is how the institutional money will tame the wild price swings altogether. The value per BTC is still purely speculative at this point, for all intents and purposes. Once institutional investors enter the market, things will get pretty interesting. Bitcoin is on everybody’s mind, for better or worse. Serious investors will try to keep the cryptocurrency’s value stable. Speculators will open short and long positions whenever possible for minimal gains. It will be interesting to see which side wins out in the end.

Whether or not Bitcoin can be tamed, is a different matter altogether. More money means more speculation and price wings. At the same time, these derivatives are a vital development for the future of Bitcoin as a whole. This hybrid approach between investing and speculation can trigger a cascade of positive events. Only time will tell how any of this plays out in the coming months. For now, there is a reason to be cautiously optimistic as Bitcoin enthusiast.

Header image courtesy of Shutterstock

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