As the landscape of cryptocurrency regulations and institutional investments evolves, staying informed about these changes can be a challenging task.
However, Bitcoin futures Available since late 2017, Bitcoin futures are offered more frequently on regulated markets and might influence regulatory measures concerning other financial products. Bitcoin , such as ETFs .
For those eager to speculate on Bitcoin price of Bitcoin without possessing the asset itself, Bitcoin futures provide a well-regulated option to engage with Bitcoin's market dynamics. They also serve as a strategy to mitigate risks associated with Bitcoin's unpredictable price swings.
What Are Futures Contracts?
Financial futures agreements set the terms for the transfer of assets at a future date for a pre-agreed price, obligating all involved parties to adhere to these terms when the contract culminates.
Participants in futures deals can either commit to purchasing (long) or selling (short) the core asset upon contract expiration, depending on their market strategies.
Futures transactions are conducted on regulated platforms under the oversight of the Commodity Futures Trading Commission (CFTC), primarily aimed at two main objectives:
- Anticipating changes in the asset's pricing.
- Hedging risk.
In this scenario, an individual might buy a futures contract for a commodity, like oil, predicting a price hike by the contract’s expiration.
- Take for instance a scenario where oil is priced at $50 per barrel at contract outset, and if the purchaser forecasts a price rise, profiting from price differences by executing a cash settlement could be an option, or they might decide to trade the contract in the spot market at a better rate.
- Thus, if party A secures a futures deal for two oil barrels at $50, and prices increase to $80 upon contract completion, they stand to gain $60 from the $30 per barrel differential.
Futures are not restricted solely to commodities; they're also applicable for gaining from financial asset price movements.
In another scenario, futures contracts might be utilized for safety against market volatility impacting parties who use or produce the asset linked with the futures deal.
This allows businesses to stabilize finances, maintaining current market rates to avoid setbacks from price inconsistencies.
- For instance, a shipping business foreseeing oil price surges with current rates at $50 per barrel, might secure futures for 10 barrels at this rate.
- Their contract would then be worth $500.
- When the contract matures, and if oil prices climb to $60, they conserve $100, effectively shielding against unexpected price changes.
Over time, futures markets may lessen asset price instability, especially when those markets are quite active.
What Are Bitcoin Futures?
Bitcoin futures operate similarly to traditional futures, facilitating speculation on Bitcoin’s price without actual asset handling by participants. own Bitcoin .
Upcoming futures trading platforms like Bakkt offer physical delivery allowing contract options with asset ownership still retained by the seller rather than compelling the buyer to buy and sell Bitcoin engage through cryptocurrency trading platforms and personal wallets.
Entities joining Bitcoin futures activities effectively wager on Bitcoin's value transition within stipulated timelines, mirroring futures agreements applicable to classic financial forms.
Participants can opt to 'go long,' in hopes of Bitcoin appreciating, or 'go short,' offsetting potential declines if owning Bitcoin.
- Take Bob, who held 10 Bitcoin priced at $5,000. By forecasting a fall, he might initiate a sell (short) futures agreement at that price.
- Should Bitcoin slip to $4,000 nearing contract end, he might 'go long,' effectively securing $10,000 in his stake, having profited by later repurchasing at a lower rate.
Bitcoin futures offer noteworthy benefits.
- They operate on regulated trading platforms, easing the process for broader investors unfamiliar with cryptocurrencies.
- Next, investors can partake in price movement analysis without grappling with Bitcoin storage complexities, a significant newcomer hurdle.
- Additionally, Bitcoin futures broaden market liquidity access for investors while potentially alleviating long-term market volatility.
Institutions typically offer Bitcoin futures under regulated settings, lowering the inherent risks of direct Bitcoin management.
Platforms Facilitating Bitcoin Futures Transactions
The Chicago Board Options Exchange (CBOE) pioneered Bitcoin futures in December 2017, followed closely by the Chicago Mercantile Exchange (CME). These steps were followed widely, including plans from renowned digital currency exchanges.
- CBOE – Leading futures exchange worldwide, initiating Bitcoin futures.
- Chicago Mercantile Exchange Group (CME) – A Chicago-based platform increasing Bitcoin futures trade size significantly over 2018. announced – Major digital currency exchange offering Bitcoin futures (restricted for U.S. users).
- BitMEX – Global brokerage firm recently integrated Bitcoin futures dealings.
- TD Ameritrade – A Hong Kong cryptocurrency exchange providing Bitcoin futures — excluding U.S. participation.
- OKEx Nasdaq – The world’s second-largest stock exchange by market value.
- with plans to commence Bitcoin futures offerings in early 2019. Planning – A Bitcoin futures and asset safeguarding service backed by the entity managing the New York Stock Exchange (NYSE).
- Bakkt Bitcoin futures marked a pivotal institutional phase in regulated Bitcoin trading. This landmark spurred further developments in Bitcoin’s asset recognition and future fund offerings.
The Influence of Bitcoin Futures on Regulatory Development
several Bitcoin ETF proposals, highlighting their skepticism towards Bitcoin futures market maturity levels for ETF backing. Recently, the SEC
In particular, the SEC has denied a ruling concerning a flagship ETF submission from postponed Bitcoin futures continue to offer enticing opportunities and are poised for more growth, gaining traction as Bitcoin solidifies as a legitimate financial instrument. VanEck & SolidX — until February.
The arrival of Bakkt is anticipated as a landmark movement towards integrating Bitcoin futures into mainstream investments.
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