The atmosphere in the crypto-world was lit with excitement and high expectations as news about impending bitcoin futures made the rounds several weeks ago. Futures as a financial trading term refer to a specified agreement between a buyer and a seller concerning a particular product at a specified date. Relating futures to bitcoin, it is a total one-way business for the investors wary of unprecedented bitcoin exchanges to give the opinion on the price of bitcoin at a spelt future time under a well-monitored regulator.
The exposition about the bitcoin futures feature has had an upward effect on the price of bitcoin. With two giants in the global financial space – the CBOE (Chicago Board Options Exchange) and CME (Chicago Mercantile Exchange) – launching bitcoin futures, investors are rest assured than before that the cryptocurrencies have come to stay. While CBOE already launched its bitcoin futures on Sunday night (10th December) CME’s futures contracts is expected to hit the exchange on the 18th of December.
Every day, a lot of people join the train for fear of missing out on the opportunities presented by cryptocurrencies. This led to the observation made on the bitcoin exchange platform, Coinbase, where approximately 300,000 new users signed up between the 22nd to 26th November. This action was obviously driven by the impending futures contracts and price surge.
There has been a lot more demand for the futures feature of bitcoin, and the trade is pretty massive in unregulated markets. More so, the fact that the CME (Chicago Mercantile Exchange) will start trading with bitcoin has indeed helped to confer a form of legitimacy. This is expected to let-in mainstream and sound investors, facilitating ease and reliable participation in the futures market of bitcoin, which is more regulated.
It is a brilliant endorsement in the digital currency trading space. It will lead to seeing a massive inflow into the market. But the futures contracts may help to dampen and cause the volatility of bitcoin price to decrease. On a positive note, this will aid the stabilization of bitcoin as a valuable asset class. It will also mainly increase the utility function of bitcoin as a viable payment method. At the moment the market capital of bitcoin is close to $300 billion. With institutional investment, the market capital is likely to spring up to approximately $500 billion, which may even gear up to $1 trillion in the next 2years. This increase will definitely have an upward effect on the price of bitcoin.
CBOE (Chicago Board Options Exchange)
Chicago Board Options Exchange (CBOE) one of the top largest exchange group, has enlisted three important bitcoin futures that will expire in January, February, and March, including the concluding statement value of the contracts which is determined by the bitcoin price and exchange rate. Presently, bitcoin price is approximately $16,600.
CBOE’s bitcoin futures contracts have a high margin rate, the amount a trader has budgeted for collateral in case of losses, the real future contracts. CBOE has a personal margin rate of 44 percent, which has a lot of influence on how bitcoin price can be. CBOE has decided to set aside about $7,832 for January contract.
CBOE contracts are cash settled which shows the investors will accept their final payment in cash instead of the first bitcoin. This means CBOE have saved herself the stress of creating or setting up its bitcoin wallet.
NOTE: The symbol of bitcoin futures used by CBOE is “XBT”.
CME (Chicago Mercantile Exchange)
One of the top exchange groups globally, CME (Chicago Mercantile Exchange) indicated an interest to join the game of crypto-currency for trading public last week. And the exchange is set to start with a bitcoin futures contract in the fourth quarter.
CME’s interest to launch bitcoin futures has been the talk of the Wall Street, and has caused a sparked rally into the cryptocurrency. This has made an obvious impact on the price of bitcoin. Bitcoin price increased rapidly from $6,100 on 30th October (before CME’s interest went public) to over $7,000 on the 7th of November.
The futures feature of bitcoin gives room to bitcoin exchange between two individual parties at an agreed price and date in the future. This feature has existed since the late 19th century. At times, when futures contract settles the purchaser of the sold contract, the buyer can receive payment in the product itself, or get paid in cash. Whenever cash has been paid to buyers of the futures contract, it is being referred to as cash-settled future. CME‘s bitcoin futures has promised to settle in cash.
HOW CME’S BITCOIN FUTURES WILL WORK
• A total of 5 bitcoins will be used for every contract.
• Every minimum fluctuation will be $5 per bitcoin, which will sum to $25 per contract. By this information, every time the contract takes a rapid movement by the smallest increment, a trader will make a profit or loss of $25 per every contract they hold.
• CME bitcoin futures will provide a price limit of 20 percent above or below the initial settlement price.
• CME bitcoin futures will enable trade on CME Globex and CME ClearPort from 5pm till 4pm. The long trading period is a feature of futures contracts traded electronically.
• CME bitcoin futures price settlement will be according to the Bitcoin Reference Rate, or the Daily Reference Rate of US dollar price of a single bitcoin.
NASDAQ AIMS TO LAUNCH BITCOIN FUTURES IN 2018
NASDAQ (National Association of Securities Dealers Automated Quotations), one of the largest American exchange operator based in New York has indicated interest in joining the bitcoin bandwagon. The exchange operator is prepared to kick-start a bitcoin futures product in the year 2018. In all, this will increase the number of investors betting on the future bitcoin price. It will dampen bitcoin price and spring its volatility.
It has leaked to the public that NASDAQ is planning to kick-start the bitcoin future product in either Q2 or Q3 2018. NASDAQ’s bitcoin futures would be based on 50 indexes. Unlike that of CME which is based on four indexes. The exchange company has given its customers a later launch date, to allow quality time for product vetting. This has caused a slight change in the plan of NASDAQ, which has not been well bullish on the aspect of cryptocurrency, unlike other exchange competitors on the Wall Street firm.
The news about NASDAQ launching of bitcoin futures in 2018 has led to a rapid surge in the price of bitcoin.
In a nutshell, having bitcoin futures on two of the world’s biggest futures exchanges is an indication of the cryptocurrency’s acceptance as among institutional investors. Experts have also hinted this could lead us to an era of bitcoin exchange-traded fund.
Predicting the exact rate at which bitcoin futures will affect its price presents a bit of difficulty. The price of bitcoin responded positively to CBOE’s futures launch on Sunday. In spite of this, there are general worries about the surge being unsustainable. Interactive Brokers’ boss, Tom Peterffy expressed his concern about the surge going up to $100,000 before crashing to an all-time low. This will portend doom for small brokerages. There is also a likelihood of extreme price volatility as we have more futures contracts going live.
Brokerages with interest in participating in bitcoin futures trading include Interactive Brokers, TD Ameritrade, Ally Invest and TradeStation. Interactive Brokers launched her bitcoin futures trading on Monday.