Bitcoin Futures set to smash the Markets Wide Open. To date, bitcoin has been traded on exchanges in basic terms, buying or sell the cryptocurrency itself.
Coming soon, however, the markets are going to be blown wide open as the CME Group and others are going to be offering bitcoin futures contracts. This means that large institutional investors can place large bets on the direction of the bitcoin price, longing or shorting it. This looks set to severely shake up the markets in a way nobody knows yet.
If you are a bitcoin trader or interested in getting involved in the space, you need to keep your eyes out for two key dates in December; the 10th and 18th. This is when the world’s first ever bitcoin futures contracts are going to be offered to investors, provided by the folks at CME Group and CBOE respectively.Advertisement
This is going to lead to a lot of uncertainty and confusion when it comes to those currently involved in the markets.
Bitcoin is unlike a lot of traditional investments, as there are a lot of people involved who do not necessarily have much of a background when it comes to the world of finance or the likes of futures contracts.
At the moment, as it is a purely cash-based market, everyone has an incentive for the most part to keep the price of bitcoin high and even increasing.
However, once these futures markets are opened, there will be the ability of very wealthy institutions to short the markets if they wish to do so, leading to massive reductions potentially in the prices. Of course, this could go the other way, depending on what way this money is distributed and invested.
At the moment, the price of bitcoin usually dips when large investors take some profits and cash out their stakes or some sort of scandal hits that temporarily causes a dip.
However, as was seen during the Global Recession started in late 2007, there can be a lot of money made in falling markets. The Big Short was a Michael Lewis book that was then made into a movie which showcased how certain investors managed to make a bomb off the collapsing housing markets in the United States.
At the moment on social media and on various forums, it appears that a lot of bitcoin enthusiasts are looking forward to the introduction of futures contracts and it seems that they do not fully understand what is in store for the markets once these dates arrive.
Futures markets work nothing like traditional cash markets. Usually, these cash markets are filled with optimists, whereas for the most part futures markets are filled with pessimists.
Future markets allow investors to hedge against risks, whereas cash markets are a place for people to invest.
When it comes to hedging bets in the world of bitcoin, those people who need to absolutely hedge is the likes of the miners and those who currently hold bitcoin. However, when it comes to the buy side of things, there are no natural hedgers. This is going to cause some trouble.
It will then be up to the speculators to dictate what happens to the price. It will be a classic battle between the bears and the bulls and it will be fascinating to see what happens when they lock their horns.