As the value of Bitcoin was rising astronomically between 2016 and 2018, many financial and economic experts were warning that the markets were a bubble waiting to burst. There was an equally loud section of experts that dismissed such predictions and affirmed crypto as the future.
The former group had their “we told you so” moment when the value of Bitcoin dropped to almost a third of its value in just one year. Other cryptocurrency markets were equally affected.
Unsurprisingly, the volatility displayed by cryptocurrencies put off a lot of traders.
The introduction of cryptocurrency futures, however, appears to be getting a positive reaction from investors and traders.
What are futures contracts?
A futures contract is a trading concept where the seller and buyer agree to trade a specified asset at a specific time in the future at an agreed price. At the time of the transaction, the price is therefore not determined by market forces.
In the case of crypto futures, an example can be made with Bitcoin, which is currently valued at around $8,700. If the involved parties form a month’s contract to trade at $7,000, it means that at upon the expiration of that period, the selling party will have to sell, and the buying party will have to buy the Bitcoins at $7000.
Whether the Bitcoin value is $10,000 or $5,000, it will not affect the futures transaction.
This applies when trading any other type of futures contract.
As in other areas relating to cryptocurrencies, Bitcoin is the trailblazer in futures contracts. Various exchanges have been offering Bitcoin futures for the better part of the year.
So far, research into Bitcoin futures contracts shows that:
- There has been a steady increase in trading volumes since February 2019
- There was a surge in May when the price of Bitcoin appeared to pick up in April
- There have been other cryptocurrency derivatives such as option contracts, index futures, and leverage token in for the better part of 2019
Ethereum futures are expected to be the next cryptocurrency derivative to hit the market soon. This is expected to, among other positive effects, attract institutional investors.
If the reception of Bitcoin futures is anything to go by, investors and traders have a hopeful attitude towards cryptocurrency futures in general. In the trading spheres, this level of hope is more than enough to affect the market positively.
However, just like before, there are experts who aren’t as positive. This is especially based on the surge in trading volumes witnessed in May when the price of Bitcoin appeared to rise.
This suggests that the value of cryptocurrencies will continue to affect the reception of cryptocurrency futures contracts.