Will Derivatives Affect Bitcoin Prices After Halving?

    News and Updates

    Bitcoin’s halving event is set to take place on May 12th and it’s anyone’s guess as to which direction the prices will go. While many believe that BTC price action is likely to follow similar patterns seen during previous halving events, there is also sentiment pointing towards a less eventful halving, in terms of price gains. To hedge against unpredictable price movement, many are turning to crypto derivatives. 

    Incoming Halving

    As of today, bitcoin is trading at nearly $9000 per coin which is 14.5% higher than the closing price four days ago. Prices are also trading above the 10- and 50-day moving averages which is generally considered a bullish sign. In line with technical data, many analysts are also predicting a steep price hike following the Bitcoin halving event.

    Price Increase?

    One such analyst, Mike Novagratz, stated his expectation that Bitcoin prices would rise following the halving event in an interview with Closing Bell. His positive opinion is attributed to Bitcoin's inflation rate being cut down to 50%. During the interview Novagratz pointed towards the fact that Bitcoin's deflationary halving event is occurring at the same time as many of the world's fiat currencies are beginning to inflate as a result of increased spending to curb the negative effects of a global pandemic. 

    Throttled Gains

    Many analysts agree with a positive outlook for Bitcoin following the halving event; however, there are factors affecting this halving event that did not exist in either of the two previous events. For one thing, as miners are preparing to make half of the earnings for their future efforts, the way major mining companies do business is likely to change drastically. These changes will likely lead to new ways for miners to reduce risk and raise profit margins.

    One method miners are likely to use to lock in prices are futures contracts.  Futures allow miners to set prices they are happy with for their coins over the coming months. Currently, June futures are set at nearly $9,500 which is above current trading prices. It is also above low price estimates from those from the bear camp. Could this mean that post-halving prices are already dialed in? It is too soon to tell but one thing that seems clear is that miner selling pressure is likely to have a much lower effect on prices than it has in the past. Miners aren’t the only ones taking advantage of futures contracts and, as a result, price action moving forward will be more difficult to predict than it has been traditionally. 

    To put the effects of the futures markets into perspective, May has seen some of the highest bitcoin futures contracts in history indicating a surge in investors and miners hedging their crypto against possible price downturn. 

    Derivatives May Hold Key

    Many of the world’s largest derivative markets for cryptocurrencies, namely Binance, OKex, Huobi, and a few others, have made it clear that there is relative security in futures. One influential exchange founder, Vishal Shah, went on record saying that a recent $700 million liquidation period on BitMEX has lowered interest while at the same time taking pressure from miners, at least in the near future. 

    Final Thoughts

    Whether the prices for BTC are set to rise or fall following the halving event, it seems the landscape of deciding prices is shifting. Traditionally, bitcoin prices have always been a case of supply and demand, with a few exceptions. Now, as bitcoin is moving into more formal financial markets, the outlook for how each coin is to be priced is considerably more complex. With the increase in futures contracts, prices could theoretically be much more predictable than what we have seen in the past.

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