Bank Of America And Bitcoin Futures!


About Bank of America:

Bank of America is an American multinational investment bank and financial service provider headquartered in North Carolina. It is the second largest bank in the United States after JP Morgan and eighth largest bank in the world.

Bank of America
Source: Ledger Insights

Early stance towards Bitcoin:

Bank of America had a rocky history with Bitcoin. In the early years of bitcoin’s inception, the CEO of the Bank of America condemned Bitcoin and its other functions on account of the lack of transparency of the cryptocurrency market. The management of the Bank believed that cryptocurrencies could prove to be a “stumbling block” in the modern financial markets.

“The foundation of the banking system is on the transparency between the sender and the receiver, and cryptocurrency is designed to be nothing of the sort. In fact, it’s designed to not be transparent.”, said the executive of the bank.

Moreover, the Bank of America had issued warnings to their clients previously about trading in Bitcoin. The Bank of America was of the opinion that buying and holding bitcoin was highly illogical. They further opined that in order to be a currency, the subject should be stable. Bitcoin’s volatility completely negates this principle.

However, the times have truly changed as the Bank of America has changed its stance towards bitcoin. It has introduced futures trading in Bitcoin for some of its clients.

Bank of america
Source: financial times

About futures trading in Bitcoin:

Futures Trading refers to derivative contracts off an asset on an over-the-counter exchange. The Bank of America has allowed futures trading for only some clients because futures are highly leverage instruments and require huge margins. These clients are high net worth individuals having enough margin to do Futures Trading.

However, the nature and number of these clients is still a mystery as the bank has refused to comment on the matter.

The bank may have allowed few clients for the futures trading feature so as to gain information about its success.

It can introduce futures trading for its other clients if the feature proves to be a success and profitable for the bank. These future contracts will be cash settled and some of them have even gone live for two or three clients. The Bank of America will be using the CME features along with Goldman Sachs.

CME futures
Source: Bloomberg

The bank has also created a department dedicated to researching cryptocurrencies and blockchain protocols. All these measures indicate or highlight the new stance of the Bank of America towards cryptocurrencies and Bitcoin in particular. Bank of America, which was once truly against Bitcoin and the related technologies, has taken a step towards improving the blockchain technology as a result of high demand from their clients as well as the development of the crypto market in general.

This announcement comes after the entry of major other investment banks of Wall Street into Bitcoin. Bank of America is following the footsteps of Goldman Sachs, who announced in March the introduction of futures trading.

Advantages and disadvantages to the Bank and its clients:

The entry of Bank of America into the crypto market is heavily beneficial to the bank and the clients who use these features. If the project is successful, the bank will be able to generate another source of revenue from operations. Moreover, since the Bank of America is the second largest institution in the United States of America the retail investors are likely to use their services for trading in Bitcoin. This will further raise their revenue from operations. There are also benefits for the clients as they can now speculate the movements of bitcoins price. We can take advantage of the leveraged position and earn heavy profits which would not be possible without the presence of futures contracts.

However, the grass is not all green. Being highly leveraged futures contracts also carry high risks. These derivative contracts follow the principle of high-risk high-reward. Thus, if the predictions of the trader are proven to be wrong, they can suffer huge losses. 

In conclusion, the futures trading feature has the potential to increase the revenue stream of the Bank of America as well as develop the cryptocurrency market. However, clients need to use their discretion and manage their risks in order to be profitable by trading in futures.

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