March 12th, 2018
Futures are not merely for physical assets, they can be used on financial assets as well. Bitcoin Futures contracts are based on the price of Bitcoin and speculations on the value of Bitcoin in the future. This allows investors to speculate the price of Bitcoin without having to buy it. There are two major reasons investors are excited about Bitcoin Futures. The first is that Bitcoin, a highly unregulated currency, will be able to be traded on regular exchanges. And also in areas or countries where Bitcoin trading banned, Futures allow for individuals to speculate the price of Bitcoin easily.
Bitcoin Futures work exactly on the same principles as other types of Futures for traditional financial assets. Speculators will either choose a short or long Bitcoin Futures contract based on the price of Bitcoin. For example, if an individual owns Bitcoin at $18,000 and predicts that the price will drop in the near future, they can protect themselves by selling a Bitcoin Futures contract at the same price. When the settlement date draws near and the Bitcoin price, along with the Bitcoin Futures get dropped, the investor now plans to buy Bitcoin futures. Now if the contract trades for $16,000 near the settlement date, the buyer makes $2,000 and enhances their investment by selling high and buying low. This is how Bitcoin Futures work and each future contract may be complex based on the exchange that will include maximum and minimum price limits.
There are a few possible outcomes that could arise from the use of regulated Bitcoin Futures:
There are separate markets where Bitcoin Futures can be traded. The first option is based off of the selected cryptocurrency exchange. Popular cryptocurrency exchanges around the world have been offering these option for a long time and the trade of Bitcoin Futures remains mostly unregulated. The second option is based on public regulated exchanges and is one of the reasons that value of Bitcoin has increased so dramatically.