A few people are getting a bit confused about the “settling in USD” nature of these contracts, which has nothing to do with what I’m talking about. Less than 10% of these contracts will actually settle and receive the applicable USD.
What’s important to understand is how futures affect future perception of price.
Here’s an example:
Imagine you go to your neighbour who wants BTC. You make a contract that you will deliver him 11,000 USD worth of BTC in 3 months. He get this contract and pays 100 bucks for this right. You are happy because you planned to sell at 11,000 anyways, and the neighbour is happy because he wants to get exposed to BTC and thinks it’ll go higher.
So now let’s say your other neighbour approaches the neighbour you just sold to, and says “I’ll pay you 200 for that contract, I think BTC is going to easily be 11200 on delivery. And then another neighbour goes “holy shit I’ll pay 1000 for that contract BTC is easily going to be over 12000 by then!” And before you know it, this contract for future delivery is going to be bid to hell, and the contract is trading around 8500 as most think it’ll be worth over 19,000 by that time.
Let’s imagine you watched this frenzy. Do you think it’ll have a perception on what you think your current BTC is worth? You’re probably really sad you have to deliver at 11,000, aren’t you?
That contract I described is a futures forward contract. And since futures have enormous leverage, how much do you think it’ll allow them to bid the future perception of prices of BTC?
When CME futures launch you’ll be able to go online and see what people expect BTC to be in 6 months. What if it says it’s going to be 25,000? How will you feel?
In other commodities, this doesn’t get so frenzied. If some guys are bidding up corn, it’ll compel farmers to plant more corn, more supply then comes online in the future, lowering price.
There is no such mechanism in BTC. I’m personally so cautiously excited to see the frenzy that happens. I really don’t know, this is where my knowledge ends and everyone else I think. Complete uncharted territory.