One of the chief complains merchants and businesses have against accepting bitcoin, is the volatility of the dollar exchange rate. Most large scale retailers, such as Dell and Overstock that accept bitcoin payments, only do so, through third party processors that convert them to cash upon receipt to mitigate exchange rate risks. Bitcoin is still a novel currency and liquidity is not on par with what you would see in highly liquid futures on established exchanges such as the NASDAQ. Are bitcoin futures necessary to bring institutional liquidity and stabilize the exchange rate? In theory, derivative instruments such as futures and options, are thought to have a dampening effect on volatility, due to to the additional market participants and higher liquidity, but is that actually true in practice?
Futures contracts were intended as tools for market participants to mitigate the risk of exchange rate fluctuations, by fixing an agreed upon price ahead of time, for a transactions that will take place in the future. Initially, futures contracts facilitated commerce between farmers looking to sell their produce and dealers looking to buy. However, things changed later on, when speculators entered the picture and starting trading these contract in between themselves, without ever intending to take delivery of the commodity itself. Speculators, are middle men that add nothing to the transaction, but only look to run the prices every which way, in order to grind out a profit. The crude oil futures market, is a good example of how damaging futures speculators can be. In July of 2008, crude oil futures exploded to almost $148, by the end of 2008, the price of crude oil crashed to $40 per barrel. In the duration of that epic price explosion, there were no fundamental shifts in worldwide oil production or any significant oil related shocks, other than the derivative inspired economic crash of 2008, which had nothing to do with oil. The New York Times ran an article on the real reason of the rapid rise of oil prices, arguing that speculators were the culprits, “But it’s one thing to have a trading system in which oil industry players place strategic bets on where prices will be months into the future; it’s another thing to have a system in which hedge funds and bankers pump billions of purely speculative dollars into commodity exchanges, chasing a limited number of barrels and driving up the price.”
The CFTC, a government body charged with overseeing financial markets, in 1991 granted Goldman Sachs an exemption, releasing them from position limits, that were specifically put in place to prevent large speculators from cornering any market. By the time 2008 rolled around ,crude oil futures were in the stratosphere and several investment banks accounted for ⅓ of all crude oil futures volume. The subsequent crash in the price of oil sent shock waves throughout the entire world.
Bitcoin and Oil are very similar, aren’t they? The Bitcoin network produces a limited amount of coins on a daily basis, just like oil producers, extract a certain amount of barrels per day. It doesn’t take a genius to realize that if a Bitcoin futures market is implemented, in the United States and Europe, the large speculators with bankrolls in the billions, will be more than happy to turn bitcoin into another crude oil-style pump-and-dump. In the case of Bitcoin, the volatility will kill any chance bitcoin ever had of becoming a 
stable medium of exchange. Anyone who thinks Bitcoin futures will have a dampening effect on volatility, hasn’t done their homework. Bitcoin did experience a very similar scenario already in it’s run up to almost $1200 in 2013, but that volatility will pale in comparison, to what Goldman Sachs and their ilk will be able to orchestrate, should Bitcoin futures ever become a reality.
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