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Futures markets were originally devised to help farmers and sellers of agricultural produce to guarantee revenues in a cyclical market that involved significant price fluctuations. Futures market traders seek to benefit from playing a game of arbitrage, and some Bitcoin analysts suggest that this may leave Bitcoin open for price manipulation. The greatest fear is that institutional investors may choose to short Bitcoin by selling off large quantities of BTC in order to drive down prices and reap the benefits from their futures positions before buying back BTC at depressed prices.
While no one can know for sure if this will happen, it is true that the futures markets are geared towards institutional investors and high net worth individuals. The complex and volatile nature of the market tends to scare off the everyday retail investor. In the short term, the futures markets guarantee an influx of capital and in keeping with other futures markets we can expect an early period of price volatility as the futures are introduced.
We can also expect that it will begin to take huge amounts to manipulate prices as more and more capital flows into the market. A surge in traffic caused an early outage of the Cboe website, while a flurry of trading activity triggered two temporary trading halts employed to regulate the market. Bitcoin has already experienced some positive price action as a result of introduction of futures markets and it looks set to benefit from the increased liquidity in the long term.
Bitcoin Futures A Bitcoin futures contract is essentially an agreement to buy or sell a set amount of BTC, for a fixed price within a specific period of time. Since many of these products are regulated, they allow firms to gain exposure to Bitcoin without— in most cases —needing to hold the underlying asset, while the capacity to trade on leverage allows these firms to closely manage their risk profile.
Bitcoin futures are a type of simple agreement contract to buy or sell Bitcoin at a specific price at a specific future date. They differ from a Bitcoin ETF , which is a commodity fund that tracks the price of Bitcoin as its underlying asset. Advocates of Bitcoin futures argue that their emergence leads to more efficient price discovery —since traders and investors can now short Bitcoin just as easily as going long.
However, in the years since they first launched, Bitcoin futures have been frequently scrutinized by industry experts—many of whom argue that some of the platforms offering Bitcoin futures products are not compliant with relevant regions, while some may be operating illegally. The lack of regulatory oversight on some Bitcoin futures platforms has led to accusations of market manipulation. Matters came to a head in October , when BitMEX—once the most popular Bitcoin futures exchange by trading volume—was charged with operating an unregistered trading platform, among other things.
Moreover, the United Kingdom's financial watchdog, the Financial Conduct Authority FCA recently announced a ban on certain types of cryptocurrency derivatives for retail customers, including futures and exchange-traded notes ETNs —signaling a potentially worrying trend among regulators. Despite the first Bitcoin futures appearing as recently as , cryptocurrency derivatives are now by far the most popular way to trade Bitcoin.
As per data from CryptoRank, Bitcoin futures now account for Though the vast majority of this trading volume is accounted for by institutional investors, the increasing accessibility and simplicity of futures products, as well as the growing range of available educational materials, have helped make Bitcoin futures accessible to casual investors.
However, a wide variety of alternative derivatives products have begun to emerge as of late, some of which may prove more attractive to both institutional and retail traders. One of these alternatives includes Bitcoin options—a type of derivative product that is similar to futures but enables more complex trading strategies. According to a recent report by crypto analytics platform Skew, Bitcoin options are rapidly catching up to Bitcoin futures in terms of trading volume and open interest, signaling rising interest among traders.
Options are starting to play catch up with the more mature futures market pic.