Will Bitcoin price go down after a short rise due to Bitcoin futures launch?
Chicago Board Options Exchange (CBOE) launched the first futures on Bitcoin on December 10, 2017.
The oldest exchange in the world, the Chicago Mercantile Exchange (CME), will also start futures on December 18, 2017. The launch of futures on regulated exchanges is the key moment for Bitcoin because the infrastructure, which will make it easier for professional traders and investors to short the cryptocurrency and help reduce the price volatility, is being tested now. It means that Bitcoin will be the new type of asset recognized by all investors in the world.
If you want to know more about Bitcoin futures you can read an article here https://tokenzone.io/all-posts/bitcoin-futures
I would like to mention that there are two types of futures:
Deliverable futures or physically-settled assume the delivery of the underlying asset when exercised by the holder.
Cash settlement − a cash payment is made based on the underlying reference rate, such as a short-term interest rate index such as 90 Day T-Bills, or the closing value of a stock market index.
For example, if the price of the underlying asset under the contract is $1000, and the actual price in the market is $1200, then the seller should deliver the goods on the delivery futures and sell it at the contract price ($1000), while according to the settlement futures the seller simply pays the difference of $200.
Bitcoin futures will be calculated, that is, there is no real sale or purchase. Let's check the CME futures since they are more conservative and will most likely surpass CBOE contracts by the trading volume. CBOE Contract Specifications:
Contract Unit
5 bitcoin, as defined by the CME CF Bitcoin Reference Rate (BRR)
Minimum Price Fluctuation
Outright: $5.00 per bitcoin = $25.00 per contract Calendar Spread: $1.00 per bitcoin = $5.00 per contract
Trading Hours
CME Globex and CME ClearPort: 5:00 p.m. – 4:00 p.m. CT Sunday – Friday
Product Code
Outright: BTC
Listing Cycle
Nearest 2 months in the March Quarterly cycle (Mar, Jun, Sep, Dec) plus the nearest 2 "serial" months not in the March Quarterly cycle.
The full list can be found here http://www.cmegroup.com/trading/equity-index/us-index/bitcoin_contract_specifications.html
How will the BRR be calculated?
The index is the weighted average value of the price of Bitcoin trading on the previous day on four exchanges: Bitstamp, GDAX, itBit and Kraken. The BRR index reflects the price of Bitcoin with a significant delay (up to one day) and is not available on the weekends. Therefore, the CME also came up with the Bitcoin Real-Time Index (BRTI), which is updated every minute.
The most important question is what's going to happen to Bitcoin?
First, the introduction of futures on the market of any assets leads to a decrease in the volatility of the underlying asset. There are many studies on this subject, and it's hard not to agree.
Secondly, there are fears that the Bitcoin futures will lead to the fact that major players will be able to start short selling. This should lead to a decrease in the price of Bitcoin. This fear is fair, but there is also a counterbalance - the limited ability of market makers to hedge such positions and a limited number of such contracts on the exchange.
Thirdly, the introduction of futures and other related infrastructures (indices, exchange of information between exchanges, professional market makers and so on) contributes to the development of the market and prevents opportunities for manipulation.