On December 18, CGSE Global Markets, one of the largest and most expensive derivatives markets in the world, is adding Bitcoin futures, and on December 10, CBOE Global Markets, also the largest options market in the United States, which operates Chicago Board Options Exchange, starts trading with bitcoin options.
These innovations are logically opening the door to bitcoin to investors and traders , but surprisingly, without trading with bitcoin. The question arises: how will the demand for bitcoin grow by trading with futures and options?
Let's try to answer this question after we find out how Futures works. Let's say Bob thinks that the price of bitcoin will increase to 20,000 dollars a year, but James thinks the price will not exceed $ 17,500. At this time, James sells futures - Bob concludes a contract, according to which on December 31 he will sell James one bitcoin for $ 17,500. Hence, Bob thinks that by new year the price will be $ 20,000, and he hopes to sell what he bought for 17,500$ for $ 2,500 more.
On the other hand, James is convinced that the price will be less than $ 17,500 and he hopes to sell his bitcoin in two months at the market price. In fact, buying and selling is not necessary because the futures contract is financed by cash. The buyer makes a difference between agreed price and market value. For example, if the futures price is $ 17,500, and the market value is $ 20,000, James will pay $ 2,500 to Bob and, on the contrary, if the price will be $ 16,000, Bob will pay $ 1,500 ($ 17,500- $ 16,000). Interestingly, both CME Group and CBOE Global Markets are paying for the futures money (as discussed above), which means that they will not have to have high-level protection systems because they do not have to trade with bitcoins.
Presumably, the Bitcoin futures market will be much bigger than Bitcoin itself. This is important, because logically, institutional investors will start bitcoin positions with futures. Hedging means that they will be able to insure their investment. Therefore, more investments will be driven to bitcoin and investors will only use futures to insure their own possible damage.
Another idea is that the futures and derivatives market for investors are a faster, safer and more regulated environment. Hedgefund managers may fully transfer from the Bitcoin market to the futures market. More worrying is that institutional funds, which have already been bought by bitcoin, think that the futures market is attractive and will begin to sell bitcoin to replace the foundations of the latter. Obviously, in this case, we may see a sharp decline in bitcoin prices.
It should also be taken into consideration that the Bitcoin futures market will significantly increase the chance for Bitcoin to be recognized by Securities Regulatory Commission (SEC) as a regular financial asset (ETF). This will bring more funds to the already overloaded bitcoin market.
In your opinion, where is the price of bitcoin?
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