Bitcoin Makes First Appearance on Futures Market

On Sunday the 10th of December, bitcoin future began trading for the first time as this marks the cryptocurrency’s debut on a major US exchange.

The futures contract experienced a rise from $15,000 to $16,000 during its first hours of the trading on the Chicago Board Options Exchange and is expected to expire in January.

According to the CEO of CBOE, the much-anticipated bitcoin futures trading on the CBOE exchange happened and the day perfectly went according to plan.

The thing about CBOE futures is that there isn’t any involvement with actual bitcoin. They are rather securities that monitor the price of bitcoin on one of the larger bitcoin exchanges, Gemini.

Just in the hours after CBOE started trading the derivatives, bitcoin’s price had moved over $17,000 on CoinDesk’s Bitcoin Price Index, leading to CBOE’s website somewhat crushing.

Reports suggest that the CBOE website was more than impressed since the trading with began at 5 pm CST. In a released statement, the exchange stated that: “Due to heavy traffic on our website, visitors to www.cboe.com may find that it is performing slower than usual and may at times be temporarily unavailable,” adding that the trading in the futures had not been hampered.

The chairman and Chief Executive Officer at CBOE Global Markets, Edward Tilly speaking on the bitcoin futures launch stated that it was business as usual with over 3,000 bitcoins contracts sold on CBOE as a result of market participants getting up and running.

It, however, appeared that only 12 registered traders were involved with the bitcoin futures market during the launch but that number has now risen to 22 during the trading day.

“That’s a fairly small pool of traders, frankly, given all the interest in digital currencies. I suspect major investors are treating bitcoin cautiously today, as they watch events unfold,” he stated.

The Chicago Mercantile Exchange, also a large futures exchange will begin trading its own futures on the 18th of December but will resort to a blend of numerous bitcoin prices across a few exchanges.

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What are Futures?

A futures contract is a type of financial contract involving two parties who enter into an agreement to transact a set of financial instruments or physical for future delivery at a specific price. Therefore, if someone purchases’ a futures contract, they are basically agreeing to purchase something that hasn’t been produced yet by the seller for a particular price.

It is a contract for assets (especially commodities or shares) bought at fixed prices but delivered and paid for later.

Buyers and sellers engaged in the futures market basically get into futures contracts to cushion risk or speculate rather than the exchanging of physical goods and this means that participating in the futures market doesn’t guarantee that you will be responsible for delivering or receiving large inventories of physical commodities.

In some scenarios, however, when a futures contract settles the buyer of the contract can receive their payment for the product itself or in cash. The latter are referred to as cash-settled futures.

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Bitcoin Futures, a bad idea?

Bitcoin futures allow investors to bet on the future price of the virtual currency. The futures will be in the form of cash meaning that traders can speculate on the coin without actually having to come in contact with it.

Some people think the bitcoin market is unstable with bitcoin exchanges under pressure and as a result, different prices are wildly printed when trading volumes spike.

Many large traders hold the view that futures may be premature. According to the Futures Industry Association, a group made up of major banks, traders and brokers, the contracts were rushed without giving enough considerations to the risks which may generate.

They further questioned whether bitcoin will receive the required police market manipulation, in an open letter to the exchanges. They stressed on the fact that, exchanges should have given more importance to industry feedback on margin levels, stress tests as well as trading limits for the system before they began trading.

CBOE and CME have however requested traders to keep a very large amount of cash as collateral to back purchases.

However, a number of people are also excited about bitcoin futures. For starters, bitcoin futures’ launch by establishment firms is more likely to give room for wider participation in bitcoin trading by other financial and investment community. There is also a possibility of an exchange-traded fund, which could bring about more investments.

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