December 10th 2017 will be a day marked in history as the first time in history, as cryptocurrency futures were launched on the world markets. Bitcoin was developed by a person or group under the pseudonym Satoshi Nakamoto, and ever since, it has caused a influx of people wanting to get their hands on it.
You would have noticed the recent spike from $12,000 to $16,000 over the space of a few days, this is due to the fact that it was made official that CME Group, the largest derivatives exchange in the world would launch. However, the CBOE (Chicago Board Mercantile Exchange) had the goal in mind of beating CME by launching first. That’s exactly what happened, because on the 10th December they launched their own futures trading for bitcoin.
What are bitcoin futures?
The introduction of Bitcoin futures might be a little confusing, so I’ll do my best to break it down. If I see a company, which in this instance we will name A and after taking a look at the company history and other contributing factors, I like the look of that company and it’s currently trading at $10. Suppose I have an inclination that company A will rise from $10 to $15 in 2 months time, someone then offers me the chance to pay $12 for A in 2 months time. I gladly accept, which means I’ve purchased a futures contract, and if I’m right, it means I’ll be paying $12 for something that’s worth $15.
Vice versa, if I think the price will fall below $10 and I wanted to sell, then I’d still be in a position where I can make gains.
All of this interest from financial institutions has generated so much hype that the price of bitcoin has grown exponentially. It opens up the doors for more ways to make money, and we all know that hedge funds and traders love to make money. One popular scenario that has been doing the rounds recently, is that powerful hedge funds have already bought up as many bitcoins as they can, then broke the news of the inevitable bitcoin futures and artificially pumped up the price to make their stake even more powerful and have their gains catapult.
There are futures contracts for almost anything, ranging from gold to crude oil and silver. The futures market for gold is 10x the size of the actual gold market itself. You’re probably wondering how it’s possible to have more futures contracts than the commodity itself. Well contracts are settled in cash, rather than the physical delivery of such item (crypto coins are only digital). The potential gains that can be potentially made from the introduction of futures contracts for bitcoin is immense, especially with vast amounts of volatility the cryptocurrency experiences on a day to day basis.
However, the bitcoin market is extremely!! Volatile and could end up costing you more money than you had originally planned. Take extreme precaution when dealing with these futures
IF you play it right you can ride the wave of the big players and make a huge gain however you have just as much a chance of losing it to. You decide the risk you are willing to take.
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