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What are Bitcoin futures?

October 9, 2019

In recent days, Bitcoin’s future contracts have been the protagonists. How could they not be? After a collapse of more than 14% in the Bitcoins market due to speculation unleashed by the expiration of CME options.

What is a future?
First, we must understand that it is a future contract. These are financial instruments by which two parties commit to make a transaction at a certain point in the future. In this way the terms are fixed beforehand.

For example, if I consider that the price of gold will skyrocket in three months, I can close a future contract. Thus, I would commit the seller to deliver the gold to me at the price fixed today, but within three months. Thus, whether the market goes up or down, the future contract transaction remains the same.

In this way, buyer and seller are protected from the uncertainty of the market. If there were an increase in the price of the same, the buyer would benefit. Whereas, if the price decreases, the seller would do it, thanks to the futures.

In the financial market, this type of products are sought by investors. However, they generally do not trade the merchandise that supports the future contract.

Therefore, futures contracts in practice function as bets on the increase or decrease in the value of an asset. Where, the profit of the purchaser of the contracts will depend on the value of the asset in the market. Without ever actually owning this asset.

When it comes to crypto currencies, futures contracts also exist. And being one of the favorite financial products of investors, these futures are much sought after by them. So we see big groups like Chicago Mercantile Exchange (CME) and Bakkt competing to offer the best futures.

The Crypto Futures
Currently, Bitcoin’s futures market has two major competitors. First are the future contracts of the CME, these contracts have already been in circulation for some time, and are digital.

This means that, at the time of the liquidation of the contract (the payment of what it indicates) this is done in dollars. Therefore, although you “bet” on the value of Bitcoin, you never get BTC in reality.

On the contrary, and this is the innovator of Bakkt contracts, these futures are physical. That is to say, at the moment of the liquidation of the contract, the investor can receive the profits in Bitcoin. This generates a greater stability in the market, not being as prone to manipulations as those of CME.

So, the Bitcoin futures market should be able to avoid speculative attacks like last week. Since, from now on, there will be a more stable instrument, traded in Bitcoin, and most importantly: fully regulated.