Liftoff: Bitcoin futures are up and trading.
Given the huge buzz around the cryptocurrency, its first day was surprisingly tame – at least by Bitcoin standards.
That’s still nicely above the $16,649 mark Bitcoin was sitting at midday yesterday, but you’ve got to remember, Bitcoin’s up more than 66% since Dec. 1. Reuters’ “Breakingviews” noted futures volume was around $50 million, just 0.5% of the volume of actual bitcoins in the prior 24 hours.
Now, it’s possible lots of would-be traders were sitting out the first day, pulling a “wait-and-see” on possible expensive glitches.
But then again, the first day doesn’t matter much. I think Bitcoin futures will be big – much bigger than they are now.
I’m not trading just yet. It’s a little dangerous for my taste, but I will eventually.
And I’m going to do it in this very specific, high-profit way that I’m going to show you right now.
How Bitcoin Could Bring Us the Biggest Gold Play Ever Made
Here’s how I’ll play the game…
If the futures market is trustworthy, I’ll play there. I won’t buy Bitcoin, ever, because I don’t trust it. If I buy Bitcoin and the price collapses, I may never be able to sell them at any reasonable price, or at all.
Just saying.
However, I’ll put up 30% margin at the CBOE or 35% margin at the CME and trade the futures, even though I know there’s no guarantee I’ll be safe playing there.
You see, there I might be able to get out using stop orders, or get out after halts, or maybe not get out and just watch my trades make me a fortune.
Based on how high Bitcoin has moved, I’d be tempted to buy futures. But based on the potential for disaster in terms of trading halts and price discrepancies in the cash market, I’d be tempted to short futures and bet on a price collapse.
I’d rather play Bitcoin both ways, and I can do that by buying straddles in the Bitcoin options market. I’ll tell you how to do that next week.
So, what’s Bitcoin got to do with gold?
Nothing much, to start off with. There’s no correlation.
However, one’s going to develop. In a major way.
Here’s How Gold Comes Roaring Back at Us
What’s going to happen if Bitcoin keeps rising and creating positive futures trading, allowing traders and investors to be more prudent in their position-taking, is that gold will probably drift lower.
Gold might even test $1,100 or $1,000… momentarily.
Calm trading in a rising Bitcoin would elicit more commentary and build perceptions about how Bitcoin is a store of value, and how it’s more profitable to hold than gold.
At that point, if there are any global crises ahead, Bitcoin will be where investors flee to.
That’s the kind of chatter that surrounds Bitcoin already – and one reason gold’s been drifting lower.
I’m a contrarian when it comes to Bitcoin; I don’t believe any of the hype about Bitcoin, other than that it’s based on blockchain – a technology I like – and it’s a speculative trading instrument (not an asset class).
If you’re like me, and you see gold falling against a rising Bitcoin, there’s a smart trade waiting for you.
I’m watching gold and gold mining stocks. If Bitcoin keeps rising and gold keeps dropping, I’ll be looking to buy gold and gold miners as they drift lower.
Why? Because by the time the Bitcoin dam breaks (and it will break), gold will be incredibly cheap and gold miners insanely oversold…
The flight to quality, into the real store of value, into the age-old “alternative currency,” into a real asset class, into gold, will be nothing short of spectacular.
Keep those seatbacks in their upright position and your tray tables stowed.
The Bitcoin futures launch may have a hard landing, and gold, sitting on the opposite runway, is waiting for clearance.
— Shah Gilani
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Source: Money Morning