Jan 30, · "Cboe Plans December 10 Launch of Bitcoin Futures Trading," Page 1. Accessed April 18, Cboe Futures Exchange. "New CFE Products Being Added in March Update," Pages Accessed April. Mar 18, · On March 14, CBOE stated why it was considering to end its bitcoin contract futures from its offerings. The platform stated: “CFE is not adding a Cboe Bitcoin (USD) (“XBT”) futures contract for trading in March CFE is assessing its approach with respect to how it plans to continue to offer digital asset derivatives for trading. Mar 15, · In most recent trade, a single bitcoin BTCUSD, +% on the spot Kraken exchange fetched $3,, up %, while the April Cboe contract US:XBTJ9 was changing hands at .
Cboes recent decision to end bitcoin futures tradingBitcoin vs. Bitcoin Futures: Which is the Smarter Investment? - Bitcoin Market Journal
A futures contract allows the trader to invest specifically in volatility. Instead of having to predict the right price at which to sell, a futures trader invests in price direction. For instance, in buying bitcoin outright, a trader would have to choose a purchase price and then decide at what price to sell.
Both of these involve precise decision-making and timing. This is tremendously difficult to pull off in the unpredictable bitcoin market. A futures contract would allow a trader to peg a future price point. At the time of writing, bitcoin has a day volatility estimate of 3.
In raw terms, the price of a single bitcoin has swung by thousands of dollars within the last year. This makes it hard to predict how and when, exactly, to sell your bitcoin. As with all commodities, the risk is always there. If you sell too soon, you may miss out on riches; sell too late and you may take a bloodbath.
A futures contract helps with that as it does not cap potential gains. Trades are made on direction and volatility, not price prediction. There are few, if any, easy ways to make money off falling prices when you hold an altcoin. For this reason, markets like bitcoin tend toward speculation bubbles. Traders only have one option: buy low and hope to sell high, creating a speculation feedback loop which inflates the value of the altcoin.
For a highly volatile asset, this opens up far more opportunities to profit. The altcoin market crash in December might have been inevitable. However, if there had been short positions in place, perhaps losses could have been mitigated. Short positions create an entire investor class built around breaking speculation feedback loops. This allows them to profit from downward price swings as well as bring an overly exuberant market back to its senses. In hedging, investors buy future positions against their current holdings.
It is similar to taking out an insurance policy. If the route to your workplace is accident-prone and you pass through that area every day, you will want to protect your car from the risk of accident liabilities.
Therefore, you hedge it by taking out vehicle insurance. In the bitcoin world, an investor buying bitcoin would also buy short positions against the asset, while someone selling their bitcoin would accompany that sale with a long contract. This allows the individual to hedge his or her bets against future market movements. With that being said, there is a trade-off in hedging your bitcoins since hedging is not free. Yet, most people would choose to take that predictable loss rather than risk suddenly losing all their positions.
Futures contracts were invented, in part, to specifically deal with the volatility and unpredictability of the commodities marketplace. Bitcoin Market Journal is trusted by thousands to deliver great investing ideas and opportunities. Join them below. Short Selling The Speculation Killer In the stock market, short selling plays a major role to correct bubbles.
Any asset, no matter how valuable, needs something to occasionally pump the brakes. For a commodities trader, volatility is the name of the game. Successful Commodities Trading Needs Volatility For example, take gold, one of the most stable commodities because of its diminishing role as a reserve asset.
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