The forecast for the cryptocurrency market after expiring bitcoin futures

The forecast for the cryptocurrency market after expiring bitcoin futures

The world of cryptocurrencies is still at the very beginning of its development, and all processes that are typical of the traditional financial sphere, including expiring bitcoin futures, are not alien to it. As a result of such sales transactions, it becomes evident, in particular about how to tame the bitcoin volatility, whether its value stabilizes or the cryptocurrency will continue to fall into disarray for more than a year.
 
Table of content:
- The concept and feasibility of futures
- How do the BTC futures work?
- How does the cryptocurrency price depend on the futures?
- Impact of the futures on the cryptocurrency market
 
What are futures and why are they needed?
 
The word “futures” comes from the word “future”.
It goes without saying, but in fact, it is a contract regarding the purchase or sale of an asset that must be executed on a certain day and at a fixed price. The contract obliges the parties to make a deal on the pre-agreed terms, oblivious to the market price at that time. And what about the maximum profit? After all, is it the main goal of any business? It turns out that in this case it is not pursued.
 
Futures play the role of an effective tool for the risk management. Business uses such contracts in order to exclude the risks associated with changes in the value of the most sought-after assets. In the case of bitcoin, futures are urgently needed to stabilize its position in the financial market, because this underlying asset is very volatile. An exchange is an only intermediary in the contracts and trades that involve futures.
 
So, let's imagine that you, as one of the parties to the contract, are obliged to buy or sell a certain amount of cryptocurrency at the fixed cost in terms that are strictly established in the contract. You have an opportunity to sell or buy these assets before expiring bitcoin futures, and according to the rules, you do not have to give the full cost, which is specified in the contract. The amount you paid is regarded as a security for the right to own futures, and is also classified as the collateral for the transaction.
 
How do the BTC futures work?
 
Not all readers of our blog are professional exchange players. Many people are just thinking about becoming traders, so let's examine in more detail and from the very beginning what a futures contract is. You can open such a contract by two schemes, which are defined as “long” and “short”. In the first case, you, as a party to the transaction, plan to purchase a basic asset at a fixed cost in a certain period. Short means the sale of the underlying asset.
 
Let's imagine a trucking company that wants to exclude the risks associated with raising the price of gas. Futures in this case are necessary. Now gas costs $ 3 per liter. Some reasons for the growth are available, so it makes sense to conclude a futures contract for 2000 liters of gas at a price that is relevant at the moment. The contract amount is 6, 000 $. With an increase in the price of fuel to $ 4, the savings will be $ 1,000.
 
The company that sells gas is in a favorable position too. The futures contract guarantees 100% sales. By the way, if the price falls, the supplier will benefit, so here we see the protection of both the buyer and the seller, who are protected from the volatility of the cost of gas. Also, a futures contract can be used for trading, not for protection. In this situation, with an increase in the value of an asset, you can assign the contract to another investor before the contract expires.
 
What about bitcoin futures? Of course, the crypto is not a physical asset. The cost of bitcoin is crucial in this case. Traders make bets on what price the cryptocurrency will be sold after a certain time. Investors earn a change in this cost and do not buy bitcoin. Futures can be sold on the exchanges, even though the cryptocurrency has not yet received legal status. The risks associated with the absence of a regulator can be reduced in this way. With the prohibition of the direct sale of bitcoins in a particular country, futures open the possibility of earning a change in the value of this cryptomoney.
 
The scheme of BTC futures is similar to the ones that exist in the traditional financial sphere. For example, assuming the growth or fall of bitcoin, speculators conclude a contract on the principle of long or short. If such a player has 1 BTC at a price of $ 12,000, and there are all reasons for the drop in value, he or she sells the contract at the present value. The closer the date expiring bitcoin futures is, the lower the cost of one coin and the contract itself will be respectively. Imagine that the price dropped to $ 10,000. Earnings will be 2, 000 $ and the investor will protect the funds due to a more expensive sale and a cheap purchase.
 
The most exchanges have got stricter rules as for the maximum and minimum price, so the example given above is just a simplified scheme. During the contract, you have the right to sell and buy futures at a price that is different from the value of their item. Any change in price in the negative and positive side can bring an income if the trader is able to analyze the markets and is actively looking for partners - buyers or sellers. However, you need to have enough money to enter the market. The CME exchange threshold is 5 bitcoins.
 
By the way, where there is a trade in cryptocurrency futures? At the moment, two types of exchanges represent independent markets for trading in BTC futures. These are crypto and open regulated exchanges. The latter influenced the growth of bitcoin in December 2017. As already mentioned, the CBOE first implemented this practice, followed by the Chicago Mercantile Exchange. An access to the futures is gradually opened by some brokerage companies, in particular, TD Ameritrade and JP Morgan.
 
How does the cryptocurrency price depend on the futures?
 
The introduction of this tool into the world of cryptocurrency will cause interest in the latter and increase their cost. As soon as BTC futures were placed on the CBOE option exchange, the price of bitcoin jumped by 10%. The same effect is observed before the system is launched on the Chicago Mercantile Exchange (CME). At that time, the price was almost $ 20,000. We can conclude that futures have a positive effect on the growth of the value of digital assets
 
- The fact that bitcoin appeared on official exchanges, inspires those investors and large financial institutions that previously did not dare to deal with the cryptocurrency due to the lack of legal regulation.
- Futures have all chances to become a profitable investment offer from institutional investors, and the market of cryptocurrency will become more liquid at the expense of more profitable and quick sale.
- The ban on the sale of digital assets in a number of countries does not allow a large number of investors to participate in the process, while futures will become a unifying factor for a wide range of participants.
 - The cost of cryptocurrency is not stable, and due to the futures there is a chance to compensate for these fluctuations, to reduce the negative consequences of bitcoin volatility and make it attractive for long-term investments.
 
The impact of futures on the cryptocurrency market
 
BTC is a showcase of the world of cryptocurrencies, therefore expiring bitcoin futures are of heightened interest. The growth in price of the “cryptocoin number one” causes the growth of the altcoins’ value, which in turn provides a significant boost for their development. On the other hand, with the active exchange of altcoins for bitcoin, their cost may drop dramatically. Experts believe that strong alternative coins, which are included in the top-list (Ethereum Ripple, LTC, Monero and some others), will follow bitcoin and become a basic active of the futures contract, and this will further strengthen them.
 
However, with all the advantages of bitcoin futures, the output of the crypto to the official market may affect it negatively. If large traders open huge contracts with the expectation of lowering bitcoin, then panic is inevitable and the price collapse will be uncontrollable. There is no support for cryptocurrency from the real economy; therefore, in fact, the bitcoin price does not have a lower limit. The losses of investors can be enormous. Many people understand this and deal with the cryptocurrency with caution.



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