Popularity of the derivative market for Bitcoin is rising day by day. Bitcoin futures are one of such derivative which has captured the attention of both retail and institutional investors.
Derivatives such as Bitcoin futures and options provides a venue for professional traders and institutional investors to enter and make the crypto market more legitimized. Even though Bitcoin futures are facilitated by few companies, its market prospects looks promising.
What are Bitcoin futures?
Similar to Bitcoin options, Bitcoin futures allow investors to access Bitcoin without having the need to hold the underlying cryptocurrency. Similar to the futures that trades in traditional stock exchanges, investors can speculate on the future price of Bitcoin through Bitcoin futures.
A critical advantage of these Bitcoin futures are that these futures contracts are being regulated by an authority. In US it’s the Commodity Futures Trading Commission, and this incentives the institutional investors to enter into Bitcoin options contract. As it improves the investor confidence when there’s a regulatory authority to govern the market.
When settling these futures contracts it is being settled in cash, and therefore, it is not required to have a Bitcoin wallet. This means that physical exchange of Bitcoins do not happen during the transaction.
How to invest in Bitcoin futures?
Investors can purchase Bitcoin futures through stock brokers that trade Bitcoin futures contracts. The main aim of investors by investing in Bitcoin futures is to reduce the market risk as much as possible.
A futures exchange would facilitate the transaction to be of ling position or short position. Long position is where the investor buys the asset when contract expires. Short position is where the investor would sell the asset when the contract expires. Apart from this investors can leverage a futures contract via calculated speculation.
These Bitcoin futures are traded in exchanges such as, Chicago Board Options Exchange (CBOE), The Chicago Mercantile Exchange (CME), and Kraken Exchange. Out of these CME is the largest Bitcoin futures trading platform that’s currently available.
Latest trends related to Bitcoin futures
Last year have become fortunate for Bitcoin futures where the trading accounts for Bitcoin futures have increased by very high margins. According to CME, 3,050 new trading accounts were added in 2020, which is a rise of 84% compared to that of 2019.
Interest among institutional investors for Bitcoin futures have improved. During the last quarter of 2020, the number of institutional investors in CME only have risen by 121%. Recently, BlackRock gave approval for BlackRock Strategic Income Opportunities and BlackRock Global Allocation Fund to invest in Bitcoin futures. This initiative will further strengthen the institutional investor interest in Bitcoin futures.
Bitcoin futures is an enthralling way to benefit from the cryptocurrency market. Having done the investment properly, it will lead to massive returns. By keeping a close eye on the cryptocurrency market, gains from Bitcoin futures can be significantly improved.