Bitcoin Futures Market

Author: nicolas tang

Bitcoin futures market

Bitcoin futures market has seen a tremendous growth since December 2017; when Bitcoin futures were first introduced by Cboe Futures Exchange, LLC (CFE). CFE later bowed out of the Bitcoin futures market in 2019. However, though the pioneers exited the market a number of other exchanges including the Chicago Mercantile Exchange (CME); which is one of the largest futures exchange in the world saw a golden opportunity and decided to utilize it.

At the moment there are hundreds of regulated crypto derivatives exchanges offering Bitcoin futures around the globe and the number keeps on increasing as new players come up. To many, the introduction and the subsequent acceptance of the Bitcoin futures around the globe plays a major role towards the legitimization of Bitcoin, which is the most famous cryptocurrency to date. One of the best advantages of investing in the Bitcoin futures market is that they are based on one of the most traded cryptocurrency, the Bitcoin. In addition, Bitcoin is also one of the most traded cryptocurrencies in addition to being the best valued. This makes it exciting and enjoyable to trade Bitcoin futures.

Bitcoin Futures Settlements

There are lots of layers in the Bitcoin futures market who offer different types of settlements for Bitcoin futures once the contracts expire. However, the most common forms of settlements for Bitcoin futures are cash settlements and physical settlements.
Of the two, cash settlements are the most common. It is important to note that the Bitcoin futures market is mostly used by investors who are after hedging the price of Bitcoin without actually owning the actual Bitcoins. Therefore, most of them are not looking for a physical delivery of Bitcoins to their wallets since some may not even have any crypto wallet, to begin with.

Nevertheless, crypto derivatives exchanges like Chicago Mercantile Exchange (CME) have started offering physical settlements for Bitcoin futures. By physical settlements, it means that the investor gets Bitcoins into his/her crypto wallet once the futures contract expires. This is a new way and it is aimed at attracting the old Bitcoin investors who own Bitcoin in wallets.

Bitcoin futures market participants

The Bitcoin futures market is mainly used by investors seeking to hedge Bitcoin prices; while others seek to profit from price speculations without owning the actual Bitcoin.
By hedging an investor is able to protect his investment from a future drop in prices given the volatile nature of Bitcoin Spot market prices. For example, an investor may have $5000 worth of Bitcoins. To caution himself from a drop of the market prices; he can open a Bitcoin futures contract to sell the Bitcoins at $5000 at a given time in the future. If that times comes and the total value of his Bitcoins drops to $4000 as a result of a drop in the value of Bitcoin in the spots market; the investor will still sell his/her Bitcoins at $5000.

For the investors looking to profit from the market price fluctuations without owning a single Bitcoin; the cash settlements are the best since they get their returns in terms of fiat currencies once the Bitcoin futures contract expires.

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