ADSactly Crypto: How Bitcoin Futures Could Affect The Future Of Bitcoin
Blockchain has opened up a new way of thinking with the introduction of decentralised digital money. While cryptocurrency is one application the blockchain can perform effectively, it is by no means the only use case.
Bitcoin being the first blockchain-based protocal, was created as an answer to the global financial crisis and the abuse of fiat by central banking and governments. Fiat has a remarkably short life span due to abuse and mismanagement, and those who suffer are often the unsuspecting consumer.
While banks and government take risks, effectively over-leveraging themselves and taking these gambles, the consumer is often stuck with the bill.
These central authorities use various financial instruments and policies to continue to strip wealth from the average joe, and before the invention, we had no option to opt-out.
The Bitcoin bubble
Once Bitcoin began to gain traction with more and more users around the world, starting to take note of what this technology can bring. The banks began to dismiss it, place local regulation on it, push out negative press about it and yet it continued to grow.
Despite so many setbacks in perception as well as in funding over the years, the Bitcoin bubble never popped. The resilience of Bitcoin has allowed the launch of brand new cryptocurrencies and an entirely new asset class. One that will surely disrupt traditional centralised Fintech as we know it.
Futures on Bitcoin
Now that banks have seen they cannot control cryptocurrency; they're signing a different tune. Looking for ways to make sure they benefit from it. We're seeing regulatory framework being put in place to bring institutional money into the market, with the first significant play being futures contracts.
Bitcoin futures first started in 2017 with CBOE and CME, OKex and BitMex creating the first contracts. Since the moderate success of these futures, more companies have applied to develop and exchange these financial derivatives. One, in particular, being Bakkt (ICE) which will be the first to pay out contracts in BTC instead of fiat.
What exactly are Futures contracts?
Financial futures are contracts that can be purchased by institutions or retail investors. These contracts provide a regulatory framework where a buyer can either choose to buy or sell Bitcoin at a predetermined price at a certain future date.
Counterparties are obligated to fulfil the terms of the contract upon expiration. Which means they either have to buy or sell the asset at the price once the contract ends.
Parties can take two positions in a futures contract; long or short.
Long: Buy the underlying asset in the future at a specific price
Short: Sell the underlying asset at a particular price set in the contract
If this still sounds a bit confusing, let me try to give you a practical example. So I'd like to make some money on Bitcoin, but I don't want to invest in buying actual Bitcoin.
Instead of having to deal with the heart-stopping ups and downs in price, hoping to wait for the right time to sell. I simplify the process with a futures contract.
I approach a futures contract issuer, and I say I'd like to make a deal on the Bitcoin price with them.
Let's say the price of Bitcoin is $10 000 and I want to go short, which means to sell.
A contract is drawn up, and I say I am willing to sell Bitcoin (the futures contract) at $10 000 in December 2019 (3 months from now).
Let's say over the next three months the price of Bitcoin hits $8 000 at the date at which the contract expires.
I get to sell at $10 000 as agreed and I saved $2 000 that could have been lost.
On the flip side, lets say the price of BTC hit $16 000, I would have to sell at $10 000 and take the loss.
Why are futures contracts important?
Futures speculate on Bitcoin without having to own it directly. Futures do not guarantee investors will make money, but it does simplify the process of investing and feels like less of a risk to institutions and traditional investors.
Futures also allow investors who have a stake in BTC to use Futures hedge their bets while they HODL the underlying asset as a long term investment. Instead of trying to day trade or swing trade your stake, futures allow for a more natural way to speculate on the price.
The future of Bitcoin
Futures contracts may not be the silver bullet that sends Bitcoin prices to the moon nor drives mass adoption. But it shows that institutions are starting to look at the space with an appetite to invest.
While I don't see this as a particular monetary win for Bitcoin, it does help add to the legitimacy as a financial asset. Moving it further away from its dark web past and bringing it into the mainstream market.
Sources:
Author: @chekohler
Click the coin below to join our Discord Server
)
It sounds like they are specialised options on the currency market, except with maybe crazy leverage! Thank you I enjoyed learning more about these new bitcoin futures contracts.
It is a pretty crazy tool and now that it allows institutions and retail investors to hedge their bets side by side it could prove to be an interesting place to play in for those who don’t like the topsy turbulence BTC price
I do think it was a little too early for these products since there’s still the ease of market manipulation!
I mean as soon as these bakkt contracts came out we saw a big sell of 5000 BTC on Bitmex and the price dropped and others continued to sell driving the price down!
Whose to say that wasn’t someone or a group invested in futures!
The modern investor on YouTube was just mentioning this today...a lot of big research companies have been asked to look at this manipulation/ relationship.
He basically said that there IS a correlation between the future contracts settling and bitcoins sell offs.
The link to his vid is here:
Thanks for the video, i've bookmarked it and will look at it a bit later. It makes total sense to do that from their financial standpoint. What we do see with these large buy and sell orders is higher trading volumes and hashing rate though.
Miners also benefit from the increase in transaction fees from these big orders so it still leaves more money in the Network over time. It might not be great short term but perhaps long term it will
If big whales who are already in the bitcoin mkt buy bitcoin future contract, they can possibly control the mkt price for double winning.
That's exactly what I think is happening now with the introduction of Bakkt. They already secured a position in BTC with a reasonable stake, bought in futures contracts at let's say 10k for end of this month
Sold their Bitcoin holdings and as the downward trend continues as other investors want to get out, they know sell their futures at the expiration date and make a profit. Then they can use this to buy back BTC and continue the cycle
I must admit with shame that I am still very new when it comes to crypto coins. I'm reading a lot, because I doubt I can invest right now. As for the BTC, I feel it's a roller coaster: yesterday it was up, today it's a little lower. The interesting thing is that all the crypto currencies started dancing with her, but some of them are already dancing alone. I remember reading about the BTC a long time ago when it was worthless and nobody gave anything for them, but now everyone wants to have, even if only one. Welcome to the team of @adsactly writers, @chekohler. The subject of crypto coins is necessary in Steem and in general for everyone to be informed of new economic possibilities. Greetings
I can totally understand why no one would want to invest in crypto at the moment! I do think it’s important to buy a few dollars worth to play around with have your own wallet with keys and get familiar with the technology
Perhaps even earn some steem and convert it to BTC and keep in a wallet so you get comfortable with converting holding and spreading your risk across different coins
This is where I feel the space is at the moment developers are learning, businesses and learning and so are consumers! As we all learn we provide valuable feedback to improve the space
As for futures this is a traditionally an institutional financial instrument I doubt many normal people will get involved in it but it brings more eyes into the space and if big institutions start taking it seriously we’ll see capital get pushed into the space
Thanks for the warm welcome and I’m all too happy to share my thoughts on crypto! We are all learning so everyone is an expert and a novice at the same time lol it’s good fun though
Hi. Very interesting your approach in this publication. On the one hand I see how Bitcoin is positioned in the market of currencies and financial transactions.
On the other hand, I don't see any change in Futures contracts. I give an example. Oil was once at 11$ a barrel. My country signed a "Future Contract" for sales at $9 a barrel for 2 years. In theory they were losing 2$. However, the price of a barrel of oil fell even to 7$ a barrel, which meant a large medium-term contract.
The people who run the economy know how to move in financial markets and that will happen even with Bitcoin (it's my modest opinion).
What I would like is for cryptocurrencies to continue to be decentralized. I believe that this is the great success of this market.
Your publication is really very good. Best regards @chekohler and thanks @adsactly for sharing.
Yes, futures are pretty popular in securing commodities like oil at a set price to avoid volatility and ensure a steady supply, which makes sense. I'm still trying to figure out how this is applicable to BTC
I'm not really the biggest fan of futures on Bitcoin but now with BTC backed futures that have to secure BTC and payout in BTC there's some positivity that large orders can be made, securing BTC off the market to honour contracts and improve the trading volume and drive up scarcity over time.
Which is what many investors are assuming. It is a great way to get large buy orders in without the investor having to buy BTC, hold keys and have all that risk, which is sort of a positive. But it remains to be seen how these daily and monthly contracts affect the price over the coming months. I'm interested to see what the equilibrium price will be when it eventually settles I'm thinking around $7500
I do agree with you, these institutions have the capital to manipulate the market and with BTC being so dominant they can't do it for all alts. This is why we need continued decentralisation and making markets so large and varied it cannot be controlled or manipulated by large players
Thanks for the awesome comment!
Like most commentators here, I too, ignore most of the principles and theories that rule the crypto market. I wish one day we can all see it more clearly.
Because of the negative connotation of the word "speculation" in our hyper-inflated economy, I cringe at the very mention of it. I am not sure about "a more natural way to speculate on the price" being a good thing, but, again, I don't know much about the subject.
My guess is that eventually cryptos will become as mainstream as fiat and given the current tendency towards new technologies, it would not be farfetched to conceive the future of economies as fiat-free.
I just hope cryptos were not so unpredictable
The crypto market is a strange one, its a brand new asset class and combines technology and finance in ways we all don't fully understand.
The futures market is merely traditional financial products trying to be applied to the space, we will see if it lasts. I've already seen some futures contracts with CBOE have been cancelled so it might not be a mainstay in the space.
Price speculation has its benefits if you're aiming to secure something long term. Let's say you wanted to purchase something with BTC but want to lock in a certain price. You could buy futures instead and make the trade with someone and they can sell the futures and secure the agreed on value instead of worrying about price changes.
I think this is a stop-gap for now. Once we reach prices like say a million-dollar BTC which seems to be the end game price fluctuations won't matter and the currency will be reasonably stable to trade with and hold
I see you're from Venezuela, I've heard Dash and Pivx has become pretty popular in the region for payments and some retail stores are starting to adopt Dash payments (with their instant pay feature). While the hyperinflation is horrible, I hope that it will be a breeding ground for crypto to grow in your country and become a safeguard for funds and show the rest of the world how it can be used in everyday life.
Welcome to the @ADSactly team of writers, @chekohler.
I'm also ignorant about crypto coins. But works like yours, allow me to know a little the financial framework of that universe.
I hope at some point to be able to be a BTC buyer, and then apply a resource like the one you present to us in your clear, precise and pleasant post.
Thank you and greetings.
Thanks for the warm welcome, happy to be a part of it and if I bring value to more people that's awesome. I would suggest you get a hot wallet like Jaxx on your PC or Smartphone and convert some of your STEEM or SBD into BTC and store it there just so you can get a feel for it and own some BTC when you do have some money maybe buy a few dollars here and there and add it to your wallet.
Get comfortable with the technology first before you invest in it big time.
Hi, @adsactly!
You just got a 0.32% upvote from SteemPlus!
To get higher upvotes, earn more SteemPlus Points (SPP). On your Steemit wallet, check your SPP balance and click on "How to earn SPP?" to find out all the ways to earn.
If you're not using SteemPlus yet, please check our last posts in here to see the many ways in which SteemPlus can improve your Steem experience on Steemit and Busy.