The concept of futures has been around in the investment community for centuries and centuries, but it was only at the end of 2017 that they were introduced to the cryptocurrency industry. Since then, a slew of exchanges has shown an interest in starting Bitcoin futures trading, which would provide investors with additional avenues for investing in cryptocurrency. Bitcoin futures are fundamentally comparable to stock or commodity futures in that they are traded on exchanges. Simply put, a futures contract is an arrangement to exchange a commodity at a fixed price and on a predetermined date in the future. Futures contracts, in this way, allow investors to bet on the future value of a certain commodity. As a result, futures contracts play an integral part in the financial industry.
Here are some significant benefits of investing in bitcoin futures-
1. Settlements in cash
Bitcoin futures contracts are paid with cash instead of bitcoin. The agreements are met by trading at futures prices that have been pre-agreed upon because there is no current Bitcoin trading on a futures exchange. The ability to settle in cash is another frequently touted feature of the Bitcoin futures contracts. Because of the potential of paying in cash, no specialized software or technological skill is required to participate in this market.
2. Cryptocurrency Shorts
Bitcoin Futures also have the advantage of allowing traders to short the currency in the market. An investing technique in which an investor engages in a trade with the intention of profiting from a decline in the market underlying assets is known as shorting. Since futures pricing is updated on a daily basis, investors could indeed short futures contracts by repurchasing their contract at such a lower price than it was originally purchased.
You may continue to buy your futures contract at such a lower and lower cost as the market goes down if you move quickly and decisively. Consequently, investors might reap substantial returns even during periods of market decline. However, it is equally vital to note that large-scale shorting has the effect of putting deflationary pressure on the market price of a security.
3. Price as a point of reference
Each trading day, the contracts would be settled using a clear reference price established by the exchange. Despite the fact that the reference price is not perfect, it will soon be included in contracts that entail Bitcoin being paid or received in the same way that it is done in other marketplaces. Jewelry manufacturers and sellers, for example, frequently include gold reference prices in their contracts with customers. In summary, establishing a transparent settlement price would make the process of adopting Bitcoin as a payment method much more straightforward. When compared to the spot market, the reliable BTC futures market is less volatile and has a modest edge in terms of organizational structure. With the futures market, you have the luxury of being able to profit from price volatility while also benefiting from more price transparency.
4. Transparency
In the case of bitcoin futures contracts, on the other hand, the Commodity Futures Trading Commission has so far established the regulations. Trading in these contracts is governed by the same regulations as trading in some other futures contracts, involving requirements for surveillance, position limitations, risk disclosures, and some other considerations, among others. Apart from that, the CME does have its own reporting obligations and surveillance activity around futures contracts, which are necessary in order for the contracts to continue to be listed on the exchange. We also have clarification on how bitcoin futures must be taxed, which was previously unclear.
Conclusion
With bitcoin futures, we understand exactly whatever the laws of the game are, as well as the ramifications of breaching those rules are clearly spelled out far in advance of the event in question.
