Bitcoin Futures is simply an agreement between two parties who decide to purchase and sell Bitcoin at a specific future price and date. The Bitcoin futures contract gets its value from its cryptocurrency and the validation given by CME. It is considered that the cost of Bitcoin is in sync with the futures contract price.
Why is trading in Bitcoin Futures better than Bitcoin?
There are several reasons why trading in Bitcoin futures is better than Bitcoin. Some of these reasons are –
- Market experts run Futures
Even though the makers of Bitcoin invented Blockchain to be breakthrough new technology, they are yet to be market experts. On the other hand, CBOE and CME have extensive experience in formulating successful venues for purchasing and selling futures contracts. After the launch of the trading venues, the price discovery of Bitcoin futures would increase. As a result, Bitcoin is in sync with the price of Bitcoin futures.
- Recognition of Bitcoin features by financial firms
Bitcoin futures has been recognised by some of the biggest financial firms on Wall Street in the form of exchanges. Many of these Wall Street firms have operations which permit the trade of such instruments with a simple process. For this, the investment community related to Bitcoin futures has been able to attract more dollars because of the simplicity of use. Also, there has been high liquidity in the Bitcoin futures market, which also presents an opportunity for becoming more liquid than Bitcoin itself. Overall, Bitcoin futures gives a better chance and higher advantage than Bitcoin.
- Reference price
Bitcoin futures contracts are settled each trading day using the transparent reference price. Even though the reference price may be imperfect, they pose an opportunity to get written into arrangements involving the paid or received Bitcoins in the other markets. Through Bitcoin futures, a transparent settlement price can be established, simplifying the process of using Bitcoin as a way of payment.
Since Bitcoin futures contracts are tangible physical contracts, they are easier to preserve with time, with less likelihood of getting lost. Sometimes it happens that Bitcoins may get lost because of some other reason. Still, due to the tangibility of the contracts, it would be harder to misplace them for future business purposes.
- Profitability in every market condition
You can profit from the rising price if you do long Bitcoin futures. But you can also profit if the price goes down. This advantage of the Bitcoin futures contract helps you navigate every market condition with profitability. However, if you were to directly purchase Bitcoin, and the price goes down, you would be left with only two choices: dealing with the loss or selling your Bitcoin. As a result, Bitcoin futures has been favoured more by experts and other traders, which makes them a better option than Bitcoins.
It is a significant advantage for everybody that Bitcoin futures trading is regulated by the Commodity Futures Trading Commission (CFTC). The regulations of the CFTC are hardly challenging, unlike the regulation of bonds and stocks. The task of the CFTC is to introduce specific rules in the market of Bitcoin futures that need to be abided by everyone using this platform. These rules balance out the market for investors and speculators, attracting professional traders and increasing the trading volume in the market.
Overall, trading in Bitcoin futures has a significant advantage over trading in Bitcoin. Futures offers higher liquidity, so there will always be profitability even when the price falls. Created by market experts, it is highly recommended by many Wall Street firms, as the strict regulation by CFTC lends legitimacy to the process. In addition, the pricing is more convenient in Bitcoin Futures as it is settled daily.