As the currency exchange rate between Bitcoin and the United States dollar reached the previously unthinkable $10,000 valuation on November 28, investment banking analysts and hedge fund managers started to rethink their options and strategies as they relate to cryptocurrency trading.
Over the last few weeks, financial news headlines reporting on the state of the cryptocurrency markets indicate that Wall Street seems ready to embrace Bitcoin and other digital currencies such as Ethereum and Ripple. As can be expected, the number of private hedge funds that deal in cryptocurrency have more than doubled, and they mostly focus on Bitcoin and Ethereum; however, a recent report by Coin Desk suggests that investors are ready to look into other currencies and blockchains.
Michael Arrington, the renowned tech investor and venture capital fund manager, is preparing to inject $100 million into a new effort to finance the growth and development of Ripple, a cryptocurrency that is showing considerable promise due to its advanced blockchain. Speaking from an investors conference in New York, Arrington explained that he believes the market capitalization of all cryptocurrencies could be worth trillions over the next few years. The collective market cap of the major cryptocurrencies has increased to more than $300 billion, which makes them as valuable as investment banking firms such as Goldman Sachs.
Whereas hedge fund managers mostly seek to profit from the rising value of cryptocurrencies, Arrington’s new fund will focus on providing funding to elevate the status of the Ripple blockchain so that it can catch up to Ethereum, an open source blockchain that has already been adopted by the central banks of Russia and Singapore for the purpose of offering digital versions of their sovereign currencies in the near future.
Another development that indicates the strong interest Wall Street has on the cryptocurrency markets is unfolding at the Chicago Mercantile Exchange are eagerly awaiting approval to start trading contracts on Bitcoin futures. Such an approval could come as early as December, and it would allow traders to speculate on the price of Bitcoin without actually having to acquire the currency.
Futures contracts typically last between one and three months; investors can either go long or short on the contracts, which means that they have opportunities to profit when the price of Bitcoin rises or falls. Analysts believe that Bitcoin futures could have an effect on the cryptocurrency markets, and this is something that finance regulators are evaluating as they finalize their decision.