The Chief Strategy Officer of CoinShaes, as well as one of the most prominent cryptocurrency proponents, Meltem Demirors, has spoken her thoughts on the upcoming Bitcoin Halving. According to her, it might not have the uplifting effect that a lot of the people seem to expect because the Bitcoin derivatives market is growing, causing more speculation rather than actual ownership and transfer of bitcoins.
Bitcoin’s halving is perhaps one of the most widely discussed upcoming events in the cryptocurrency community. Since it will slash the block reward in half, the supply of freshly minted bitcoins on the market will be substantially reduced. This causes a lot of people to believe that the event will have a positive effect on Bitcoin’s price.
Meltem Demirors, CSO at CoinShares, however, isn’t particularly thrilled about the notion. “There is a very real possibility that the price of bitcoin does not go up after halving.” – she said in a recent Twitter thread.
The main reason for this is the growing influence and impact of the Bitcoin derivatives market. According to Demirors, most of the firms are looking to trade derivatives, rather than the underlying asset.
1/ there is a very real possibility the price of bitcoin does not go up after halving.
for the first time, there is a robust derivatives (futures, options) market for bitcoin. most firms looking to speculate on bitcoin will trade a derivative, not the underlying.
— Meltem Demirors (@Melt_Dem) December 24, 2019
She also drew a comparison between Bitcoin and traditional markets such as oil. She explained that derivatives are dominating the trading, and most firms use paper contracts to speculate on the price of oil, hence making the entire market driven by speculation.
Building up to the point, she explained that the more Bitcoin becomes an investable asset, “the more it’s price becomes decoupled from its value and its supply and demand.”
There’s a lot of merit in Demirors’ point. Bitcoin derivatives, those that are settled in cash in particular, represent an option for investors to receive exposure to its price without having to own Bitcoin. They don’t have to worry about storage and safekeeping.
This, however, diminishes the demand. Because people can trade it without owning it, they don’t have to buy actual bitcoins, which might render the principles of basic supply and demand obsolete.
But it’s also worth noting that we’ve already seen strides in physical delivery of bitcoins as well. Bakkt was the first major venue to do so in a regulated way, allowing investors to work with physically-delivered Bitcoin futures. Of course, the volume on those contracts is practically non-existent compared to the volume of cash-settled Bitcoin futures on exchanges such as CME, BitMEX, Binance, OKEx, and so forth.
While all of the above is undoubtedly a legitimate point to consider, it’s also worth noting Bitcoin’s scarcity. Indeed, derivatives trading halts the effects of the supply and demand, but there’s more to Bitcoin than just that.
For once, hoarding physical commodities such as oil and gold is expensive in terms of redelivery, insurance, and storage. The cost of holding Bitcoin or other digital commodities, for that matter, is almost non-existent. As such, as BTC’s demand grows, investors would have to go through barriers that are considerably lower to acquire and safe-keep it.
Bitcoin’s finite supply is also something to be considered. It’s the world’s first scarce digital object, and this has to be accounted for. After all, there are more than ten cities in the world where if one person wanted to own a whole bitcoin, he wouldn’t be able to because the population of those cities is higher than the number of bitcoins that would ever be in existence.
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