Bitcoin Futures: Complete Guide for Beginners

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Bitcoin futures are poised to change the crypto market forever. Here’s a guide to understanding the functions and implications of these agreements.

One of the most recognizable features of the cryptocurrency market is its instability. In fact, this market may be quite a challenge for the newbies as sometimes it’s impossible to keep track of all the frequent changes. Altcoins and Bitcoin are already known for moving their prices by almost 20 percent within 24 hours, which often is hard for both sellers and buyers.

The cryptocurrency market is not supported by any company’s service or product, therefore it is fully and solely dependent on the market forces of supply and demand.

Available since the end of 2017, Bitcoin futures have the potential to influence regulatory decisions and are progressively available on regulated exchanges.

Although this may sound simple, there is a lot more that comes to Bitcoin futures. Hence, we have created a guide to help you better understand the whole concept.

What Are Bitcoin Futures?

Simply put, futures signify agreements to sell or buy an asset at a specific price on a specific date in the future.

This being said, a Bitcoin futures contract allows the sellers and the buyers to settle the transaction of the cryptocurrency on a fixed amount at a particular time in the future.

The parties of this contract have to go forward with the transaction (buy and sell) once the contract is entered at an already-agreed price. Regardless of the market price of the cryptocurrency at the time of the contract execution, the sellers and buyers can agree upon a price suitable for both sides.

The goal of using such an agreement is risk management, not profit maximization.

In December 2017, two major exchanges, the Chicago Board Options Exchange (CBOE), and the Chicago Mercantile Exchange (CME) took the crypto world by storm when Bitcoin futures contracts were introduced.


bitcoin trading data


[Source: CBOE]

Today, Bitcoin futures are considered a legitimate way of trading and are deemed perfect for short or even medium-term investments.

How Do Bitcoin Futures Work?

Bitcoin futures, basically, work on the same exact principles as the futures of traditional financial assets.

The participants in the Bitcoin futures contract are led by their own assumptions of whether the price of the coin will go up or down.

Let us explain the concept through an example.

Imagine the two parties in the contract, the person A who is a seller, and person B is the buyer in the contract. Both A and B, enter into the Bitcoin futures contact that is to be executed three months after the current date.

The contract implies person A buying one Bitcoin at the price of $5,000. The current market price of Bitcoin is $4,000. Since person B is buying, it is preferred to be on the long end, while person A is on the short end.

Now, imagine the Bitcoin’s price reaching $10,000 in three months when it was originally sold for half of that price.

Even though the profit of $5,000 is clearly for the buyer, both participants have protected themselves of the fluctuations in the coin’s price with Bitcoin futures.

What Do Bitcoin Futures Mean for the Price of Bitcoin?

When talking about the impact of Bitcoin futures on the price of Bitcoin, it is important to take the length of the terms into consideration.

In the short-term, Bitcoin futures affected the overall interest in the cryptocurrency market, therefore the price was pushed upwards.

For example, when CBOE launched Bitcoin futures in December 2017, the price jumped by 20 percent in one day to $16,936.



Similar to this, when CME launched Bitcoin futures, Bitcoin’s price broke the $20,000 line.



Granted, the short-term is proven to positively affect the price and interest in currency.

In long-term, it is uncertain to say which direction it may take the coin, but in all likelihood, Bitcoin futures will continue to boost the price.

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How Do Bitcoin Futures Affect the Market?

Due to the Bitcoin futures being a regulated form of investment, these contracts are more likely to be supported by a larger number of people, especially those who are concerned about the unregulated and unstable nature of cryptocurrencies. With Bitcoin futures, they have the chance to protect themselves effectively. This means that the Bitcoin futures indeed help the interest in cryptocurrencies investments to increase.

As of now, Bitcoin futures are the only available agreements of their kind. In the future, it is expected that other cryptocurrencies will initiate such contracts. Among these altcoins, there are Bitcoin Cash, Litecoin, Ripple, Ethereum, and others. By allowing their users to also enter futures contracts, the interest in investing in these cryptocurrencies is expected to rise as well.

Where Can Bitcoin Futures Be Traded?

If you wonder where you can trade Bitcoin futures, there are two separate markets for this purpose.

The first option you have is on preferred cryptocurrency exchanges. For quite some time now, various cryptocurrency exchanges offer this option for everyone willing to trade Bitcoin futures. Even now, these trades still remain unregulated for the most part. You can select your cryptocurrency exchange according to your wishes, but we suggest considering exchanges such as OKCoin and BitMEX.

The second option you have if you want to trade Bitcoin futures is to use exchanges that are publicly regulated. This, we must say, is a clear explanation for Bitcoin’s increased price during the time Bitcoin futures fist launched.

Once again, it all started with the launches of CBOE and CME in December of 2017, and firms like JP Morgan and TD Ameritrade followed the example. Both companies have already expressed their interest in allowing access to these markets.

The Advantages of Bitcoin Futures

The biggest advantage of Bitcoin futures contracts comes from the ability of the investors to speculate on Bitcoin’s price, even where Bitcoin trading is rigorously forbidden. On the platform, the Bitcoin futures can be traded anytime over the agreement’s lifetime.

Another benefit of Bitcoin futures is that the participants in the contract are not obligated to agree on completing the transaction immediately.

Generally, the existence of Bitcoin futures brings more convenience and security to the market, as it is easier for people to sell and buy Bitcoins with fewer risks.

This is why Bitcoin futures are appealing to both consumers and traders.

Closing Remarks

While Bitcoin futures are yet to hit the mainstream, it is believed these contracts can, in fact, bring more liquidity to the cryptocurrency market.

Although there is a lack of regulation, the agreements might actually boost the confidence of investors to sell and buy coins in more cost-effective ways.

All in all, Bitcoin futures open up the market of Bitcoins to a vast audience, which includes countries where Bitcoins are banned. The launch of Bitcoin futures can help solidify the image of Bitcoin as a legitimate asset and help with price transparency. Bitcoin futures are currently perfect for investors that have large interests.

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