The launch of bitcoin bonds is making bitcoin looking like a traditional financial product.
The Japanese financial information firm Fisco announced early this week that it is experimenting with the country’s first bitcoin-backed bonds. The news follows other announcements in the last several weeks for bitcoin options, futures and an exchange-traded fund tracking bitcoin derivatives in the U.S.
Derivatives products will open new doors for liquidity, and will give bitcoin better price discovery and will lower its risk for volatility. Adam white, the Coinbase vice president and general manager of its GDAX exchange stated that “I think products like derivatives or an ETF effectively allow traders to do two things: speculate and hedge risk on the price speculation.”
The price of bitcoin has been quadrupled in price this year, which hit a record above the $4,500 on Thursday and notching a market value of $74 billion amid growing institutional investor interest in the digital currency.
Many government and financial institutions see enormous potential for improving transaction security and efficiency using the blockchain technology which supports bitcoin.
Bitcoin’s price in the market is prone to massive volatility, sometimes several hundred dollars within a session. With bitcoin futures in the works, investors will be able to protect themselves from potential sharp drops in the bitcoin prices through hedging.
Bitcoin-backed bonds will allow large institutions to store value using the digital currency and potentially be more open to accepting bitcoin as payment.