What's going on?
One of the biggest operators of stock exchanges in the world is entering the Bitcoin market!
What does this mean?
CBOE is the second-largest stock exchange operator in the US and owns Europe’s biggest stock exchange. It has entered into an agreement with Gemini, a company founded by the Winklevoss twins that facilitates cryptocurrency trading, whereby Gemini will provide CBOE with data on cryptocurrency trading (including the price at which Bitcoin trades).
This will help CBOE create financial products (a.k.a. derivatives) that are linked to the value of Bitcoin (the proposal is pending permission from the derivatives regulator, which is expected later this year or in early 2018). If approved, investors – including big institutional investors – would not have to physically buy Bitcoin in order to invest in it. Instead, they could much more easily buy a Bitcoin derivative – which would likely encourage more investment in Bitcoin (and other cryptocurrencies).
Why should I care?
The bigger picture: American regulators are slowly opening the door to cryptocurrencies.
Earlier this year, the main investment regulator in the US, the SEC, refused to grant Gemini permission to create an exchange traded fund (ETF) based on the value of Bitcoin (it would act like a stock, the value of which is tied to Bitcoin’s value) – but the SEC is currently reviewing this decision. Meanwhile, the CFTC (the regulator for derivatives), granted its first approval for Bitcoin-linked trading last week (to a company called LedgerX). The point is that the regulatory road seems to be clearing for more cryptocurrency trading.
For markets: Opening up Bitcoin to institutional investors should be positive for Bitcoin’s credibility.
One of the inherent characteristics of Bitcoin is that it has value simply because people ascribe value to it. And the more people that say it has value, the more value it then has! As such, if institutional investors (who tend to have much deeper pockets than individuals) begin investing more actively in Bitcoin, it should increase the likelihood that Bitcoin becomes a real investment choice rather than a fad.