Bitcoin proved to be a very risky asset on the crypto market and trading on its future price looks like the best option for now.
Bitcoin futures are a fairly new development following the regulatory approval by the end of 2018. it allows trading against bitcoin’s future value without using exchanges. The existence of bitcoin futures has come with many exciting developments throughout 2018.
In the cryptocurrency trading world, there are several ways to do things. To buy/sell coins and assets through exchanges is a popular but risky technique.
Leveraged margin trading is an option as well; however, some platforms have deactivated this option. Then there is the Bitcoin futures contract, which can be quite interesting but not too many people know about them or how they work.
What are Bitcoin Futures?
A futures contract consists of, two parties that agree to trade a commodity at a particular price on a future date. For instance, consider a farmer who sells grain crops at the beginning of the growing season. Say the cost of grain decreases between now and the time of harvests he will suffer financial losses.
The people purchasing his grain are in the same position except on the opposite side of the equation. If the grain price increases, they may find their products selling at a loss.
Futures are a form of protection against these fluctuations. The two parties; buyer and seller agree to make a trade at a specific price and fixed future date. The agreement is a legally binding contract where the buyer and seller must complete the purchase regardless of winners or losers.
Financial traders usually use futures as a method of gambling on an asset’s future price. If they have faith that prices will go up, then purchasing assets at a fixed future price gives a trader the chance to sell those assets, or even the futures contract itself, for a greater price when market rates increase. It is risky business and profits rely on a thorough understanding of market fluctuations.
Bitcoin futures work similarly. With the buying and selling of bitcoin futures contracts, investors may speculate on bitcoins future value without even having to possess the asset.
BTC Futures History
Bitcoin futures existed for a while before 2018. However, they were traded only on cryptocurrency exchanges as unregulated assets. Regulated bitcoin futures were presented at the end of 2017. In just a week in December, the Chicago Board Options Exchange (Cboe) as well as the Chicago Mercantile Exchange (CME), began to trade futures based on bitcoin.
The more significant financial community received the introduction of bitcoin futures. The existence of bitcoin futures was the first chance to trade bitcoin without having to own any. Moreover, it presented the defensive security and legality for regulations.
Beneficial for Countries where Bitcoin Trading is Banned
Trading bitcoin futures benefits investors in countries that have prohibited bitcoin trading. So trading BTC futures does not involve any law breaking because you’re not trading bitcoin itself.
The cryptocurrency community had a surge of early enthusiasm at the introduction of bitcoin futures. The expectation was that the market would have increased liquidity from the inflow of new investment.
Prior to these events, the price of bitcoin had been on a steady rise. The Cboe website malfunctioned the day that bitcoin futures trading opened up, and the bitcoin price went up by 10 percent.
When bitcoin futures trading was opened by the CME a week later, Bitcoin reached its all-time price high of more than USD 20k.
What Makes BTC Futures Contracts so Appealing?
There are so many reasons why bitcoin futures products are essential in the crypto world. First of all the introduction of bitcoin futures by establishment organizations will probably open the door to broader participation in bitcoin trading by Wall Street firms. It may also open doors for an exchange-traded fund, which might bring more investments into space. Most significantly, it could aid in dampening bitcoin’s hair-raising volatility.
Leveraged Trading VS Future Trading in BTC
What makes Bitcoin futures contracts interesting is also the fact that neither party is agreeing to conclude the transaction straightaway. Belligerent traders usually look to leverage their position by posting a deposit or a small percentage of the original futures contract price. Leveraging like position can produce way higher earnings and it may also result in major losses. Leveraged trading is inevitably risky business, particularly when “gambling” on the futures contract related to that position.
It isn’t very difficult to see why Bitcoin futures contracts have continuously become very popular, exclusively on the Bitmex and OKCoin exchanges.
Speculators are rather keen on the volatility of Bitcoin price. This means they are going to open short and long positions numerous times every week. Effective traders, who frequently use technical analysis to forecast market movements, will regularly make a small profit for each Bitcoin futures contract they hold.
Some of the Concerns People Have
Several people do not believe that the bitcoin market is adequately mature for a futures market. The unstable market with bitcoin exchanges being pressured and printing madly different prices when there is a spike in trading volumes. Security issues and hacks are also widespread — critics reason that instability in bitcoin might spread to other areas of the futures markets.
The real Bitcoin believers will increase their contracts quite frequently. This is usually done by those who believe the Bitcoin price is yet to rise significantly. There are big Bitcoin futures contracts owners on these exchanges as we speak. And I mean “whales” holding several thousands worth of contracts, which is quite a bold move.
2018 remains the first year of regulated bitcoin futures; nevertheless, the story is not yet over. The existence of bitcoin futures might as well be the beginning of a captivating historical story.
BTC futures evolution could define how digital currencies will be embraced by mainstream financial markets.