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Author Topic: Can Bitcoin benefit from a derivatives market?  (Read 820 times)
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July 07, 2011, 07:12:56 PM

I am of the opinion that in order for Bitcoin to gain wide acceptance, we need to have a larger merchant base.  Established, high volume merchants, not start-up companies no one has heard of.  The start-ups are fine, and have a place in Bitcoin, I’m just talking about taking BTC to the next level.

The primary problem that I see is the volatility in the current BTC prices compared to <insert currency of your choice>.  Speculators are driving the price of BTC’s all over the map, making BTC’s an unfavorable medium of exchange at the moment.

Rather than fight the market and the speculators, perhaps we can have an exchange that both merchants and speculators can use.  This is where derivatives may be able to come into play.

Any business worth their salt will do pro forma projections on future cash flows.  This is particularly important if they want to receive financing, a line for working capital for instance, from a bank.  A pro forma would be incredibly difficult to do in Bitcoins current volatile market.

What if someone were to set up some sort of futures market?  Merchants could buy contracts that essentially lock in their Bitcoin price, allowing them to price their goods accordingly.  Essentially hedging BTC's volatility.

Speculators can trade these futures contracts, allowing them to “play the market.” 

I don’t want to go into too much detail because really I’m just brainstorming and I don’t know if this topic has come up before but I thought I’d throw it out there.  If it sounds feasible, I’d be willing to put in the time to make a more concrete plan, I just don’t want to waste my time if no one thinks this will work.  Thoughts? 

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July 07, 2011, 07:19:52 PM

Definitely yes, i think more ways to trade bitcoin are needed. We do have already, but we need more (derivatives).
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