What to expect from Bitcoin futures

The Chicago Board of Exchange (CBOE)  opened its doors to negotiate Bitcoin Futures (XBT), and wrapped it with a 17% gain in the January contract. Its biggest rival, which crosses the city, Chicago Mercantile Exchange (CME) has just launched its own Bitcoin futures trading today. This has been relatively large news in the Bitcoin community, but many still scratch their heads trying to make sense of everything. In this bitcoin future expert review, you can know what the implications of these monumental events are.

First, let's step back and define what a futures contract is. A futures contract is simply a contract to buy or sell a financial instrument or other underlying assets at a predetermined price in the future. They can be liquidated by the physical delivery of the underlying goods or in cash.

In other words, one of the parties is speculating about the increase in the value of the underlying asset, and the other is protecting itself against the possible loss of value. The futures contract rewards the party that makes the most accurate prediction of the future value of the underlying asset.

Makes sense?

So what does this mean for Bitcoin?

In the case of Bitcoin, a futures contract would allow two parties to speculate or cover the price of Bitcoin at some time in the future.

The important part of the above are the parts that would be speculating or covering. Futures contracts are primarily commercial agreements for experienced operators and institutional investors. By allowing these contracts to be negotiated in a regulated market, CBOE and CME have opened the doors for these operators to participate in the Bitcoin game and indirectly legitimize it as a class of assets.

Keep in mind that because these contracts are settled in cash, the funds are not actually used to buy the underlying asset, only to speculate on its price movement. As such, the introduction of Bitcoin futures trading does not necessarily directly improve the capital flow of Wall Street money in Bitcoin, but it can be expected to have tangential effects. For example, a hedge fund that previously refrained from going to Bitcoin in the long term, due to the lack of hedging tools, could now consider assigning Bitcoin to its fund, using a series of futures contracts to protect itself from risks to the low.

Handling case

Despite the potential of huge benefits for the Bitcoin ecosystem, there may be some disadvantages. Bitcoin markets are still immature compared to a well-regulated and time-tested stock markets such as the NYSE-ARCA or the NASDAQ. Despite what appears to be a total healthy circulation of currencies, currently around $ 275 billion, futures contracts are linked to a combined rate (CME calls this its Bitcoin or BRF reference rate ),  coming from a handful of exchanges, or in the case of CBOE, only one exchange.

The problem with this is that these exchanges only negotiate a fraction of the total circulation. The 24-hour volume of Gemini Bitcoin accounted for only 1.6% of the global Bitcoin trade. With such small volumes and a thin order book, the price of Bitcoin could be subject to manipulation by a number of unscrupulous merchants trying to move the market to obtain a favorable execution in highly leveraged futures contracts. Strategies that are illegal in a regulated market like NASDAQ are a fair game in cryptocurrency markets. In addition, the Bitcoin market has proven to be sensitive to media coverage; It has even been shown that a single CEO of a globally recognized financial services firm moves the market with just a few words.

While it is the hope that futures trading helps set the stage for a more regulated trading environment, we should not ignore the motivation of speculators to make large sums of money. As the saying goes, "where there is a will, there is a way" and it has happened on a number of occasions in well-regulated US markets.

Final thoughts

While Bitcoin's intention was to allow the parties to conduct transactions "without going through a financial institution," the blessing of Wall St. and the US government. UU. It may be a necessary evil to allow more widespread use, protection of the public and, finally, more confidence by a wider range of investors. Bitcoin futures represent an early case study that, if successful, can help pave the way for the approval of ETFs and other investment vehicles, making the ecosystem grow even more. If we are lucky, this creates a virtuous and self-sufficient cycle of wealth, awareness and value creation.