Bitcoin can bring more security to future market and help prevent market manipulations practices. It happens because of the digital nature of bitcoin that allows the asset to have an easy transference. So, the platforms dedicated to bitcoin’s future market, as Bakkt, can bring more security to the investors.
In the future market, investors can operate with two types of investments, physical delivery or cash settled. While in the first case the physical redeem of the asset happens at the expiry of the contract, in the second it doesn’t. Therefore, the most common way for the asset with complex logistics to do physical delivery is the contracts as cash settled. As an example for this type of transaction we can look at future precious metals market.
However, the cash settled contracts may hide a great vulnerability. An investor that keeps large amounts of a specific asset can do many contracts of this type. Because he hasn’t compromised his bookings, he can execute a big sale dropping prices or a big buy, raising them. U.S. Commodity Futures Trading Commission knows this kind of manipulation as Banging the Close.
How cryptocurrencies can help to prevent manipulation
Because of bitcoin have a simple system to transmite the asset, it will be hardly used in cash settled contracts. This technology have a so attractive system to transfer values that Saudi Arabia and United Arab Emirates actually develops a project to build his own cryptocurrency targeting international transferances. The permanent storage at the blockchain is another important feature. Futures regulations can consult past transactions and start investigations about suspect transaction. In this way, bitcoin enters the future market already promising improvements to prevent the manipulation of the financial market.
The portal specialized in crypto market, CCN, has made a complete analysis about the uses of bitcoin to prevent manipulations in future market.