Does the derivatives boom make Bitcoin’s halving meaningless?

Editor's note: This article is from William Chat (ID: William1913), author: William Chen

Everyone knows that I have absolute confidence that the halving will lead to an increase in prices, and I am not afraid of being slapped in the face when I predict that there will be a halving market. To be honest, most analysts will be cautious in using ambiguous words such as "maybe", "perhaps", and "high probability", but for me, there is no ambiguity. In a word: I predict that there will be a halving market.

Under such a highly subjective premise, I am not impressed by those who say that the price will not rise after the halving. I think they are all nonsense. The result is wrong, and the analysis process and logic are also wrong. But I will still read it, and I suggest you read it too. As the old saying goes: Listen to both sides and you will be wise.

Yesterday I saw an interesting analysis on Twitter that "the price will not rise after halving". This is from this lady:

To give a brief introduction, this person is a big V on Twitter with about 100,000 followers, and is also a supporter of cryptocurrency.

She sent out a series of tweets yesterday, the first of which was straightforward: I don’t think the price will rise after halving.

Her tweets are as follows:

1. It is very likely that the price of Bitcoin will not rise after the halving.

For the first time, a robust derivatives (futures, options) market has emerged for Bitcoin. Most companies that want to speculate on Bitcoin will trade a derivative, not the underlying.

2. One of the topics in other commodity market research is how to price. Bitcoin can be said to be a digital commodity.

Normally, producers determine the price of goods (classic S = D = P in economics)

When derivatives boom, producers lose the power to set prices.

3. Let's compare the changes in the oil market over the past 20 years.

[The oil market] is dominated by derivatives. Most companies speculate on the price of oil by buying and selling paper contracts. The market is driven by speculation.

4. Bitcoin now has a new market - a market driven by speculative trading and driven by derivatives.

@BitMEXdotcom was the first to enter this market and is now a behemoth.

@CMEGroup aka Bakkt joins the game. Now hundreds of new companies are popping up.

5. The more Bitcoin becomes an investable asset, the more its price becomes decoupled from its value and its supply and demand.

It became another backwater in the great game of global speculation. It became “financialized.” It became relevant to the macro market.

6. Today, the Bitcoin derivatives market is still small. But the market will grow rapidly.

That’s what the tweet said. Why do I find this analysis interesting? Because I do believe that the prosperity of the derivatives market will gradually make the Bitcoin market mature and stable.

However, there is still a problem in using the prosperity of the derivatives market to prove that the halving of Bitcoin will not affect the market, that is, the price basis of the derivatives market is still the spot market. We have talked about the issue of spot depth before. At present, the spot depth is really average. When the derivatives market is prosperous, it is easy for people to manipulate the spot market price to reap profits in the derivatives market.

The logic of this tweet is that Bitcoin has been “financialized” because of the booming derivatives market, just like oil, whose price is determined by Wall Street and London, not by oil workers. Therefore, the supply and demand relationship affected by the Bitcoin halving cannot determine the price of Bitcoin. The price of Bitcoin is determined by the derivatives market.

The biggest problem with this logic is that the derivatives market has not yet reached that scale, and the spot market still holds the pricing power of Bitcoin, rather than futures trading markets such as Bakkt and Bitmex.

It is better to listen to both sides and do more analysis. Although the result is that I still firmly believe that there will be a market for Bitcoin after the halving, it is also a good thing to convince others, isn’t it?