30s Summary

Bitcoin futures’ interest could reach $62.5bn if the cryptocurrency’s price hits $100,000, compared to the S&P 500, which carries $871bn open futures, and is 1.9% of its $43tn market capitalisation. However, much of Bitcoin trading happens in BTC-only places like Binance, Deribit, and OKX. More Bitcoin-linked products are likely, but they represent a step toward market balance, not necessarily raises in value. Regulatory decisions, such as Senator Cynthia Lummis’ plans to convert US Treasury gold certificates into Bitcoin, may shape Bitcoin’s future. Overall, derivatives markets will ultimately be shaped by broader Bitcoin adoption.

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For a long time, Bitcoin getting to $100,000 has been the talk of the town for investors. What’s exciting is not simply reaching that number, but what it means for the investment world. The impact of big-time investors getting in on Bitcoin, along with advancements in Bitcoin derivatives could suggest major changes coming.

Currently, a large amount of interest in Bitcoin comes from futures, which have increased by 15% in two months, making the total $58 billion. The futures open interest in Bitcoin could clock in at $62.5 billion if Bitcoin hits a $100,000 value. This is a pretty big deal when compared with the S & P 500 which has $817 billion open futures, and is only 1.9% of its $43 trillion market cap.

However, comparing Bitcoin to the S & P 500 isn’t an even match. Over 65% of Bitcoin trading happens on platforms like Binance, OKX and Deribit, places where only cryptocurrency is traded. This number is expected to shrink as regular financial institutions start dealing with Bitcoin, especially those that appeal to big-name investors.

Saying that, don’t think that just because regulations are in place that adoption will follow. For a year between 2017 and 2019, the CBOE had Bitcoin futures available but ended up pulling them because of low demand. Brand new approvals for Bitcoin options mean progress, but it’s only a step in the right direction.

In order to get Bitcoin’s value past that $100,000 limit, we really need big investors to get involved. Spot ETF options, for instance, could be a game changer and lead to more market growth. They could introduce strategies that could lead to creating income and reducing liquidity risks. As digital currency becomes more accepted, the derivatives market will likely shape itself to fit this new reality.

A big thing to remember about futures markets is that while they might seem confusing, taking short positions doesn’t always mean you’re expecting the value to drop. Strategies where investors make sure profit by selling futures while holding onto Bitcoin create a high number of short contracts. These strategies aim to balance the market, rather than gamble on drops in value.

A recent breakthrough moment for Bitcoin was when Microsoft shareholders voted to move funds into Bitcoin—a big move from some big players. Even if this doesn’t pan out, the fact that it’s on the table could encourage other companies to make similar moves.

In addition, Senator Cynthia Lummis’ proposal to convert US Treasury gold certificates into Bitcoin and create a “Strategic Bitcoin Reserve” adds another element to this movement. Her plan includes getting hold of 5% of all Bitcoin, holding it for 20 years—and could make Bitcoin’s future seem brighter.

Despite all the buzz about Bitcoin getting to $100,000, it’s worth mentioning that the derivatives markets won’t necessarily be the driving factor. More likely, they’ll follow the lead of broader Bitcoin adoption magnified by fears of regular currency becoming devalued. And it’s this mind-shift rather than any derivatives product that will establish Bitcoin’s place in big investors’ portfolios.

Research by Lyn Alden supports this, showing a link between the global M2 money supply and Bitcoin’s price. At the end of the day, a strong and mature derivatives market will more likely be the result of Bitcoin’s price breakthroughs, not the cause.