The Real Effect of Futures Markets On Bitcoin

The Real Effect of Futures Markets On Bitcoin

Two weeks ago, Bitcoin entered its first ever stock market derivative in the Chicago Board of Exchange (CBOE) as a futures market contract and its debut went positively well, other than crashing the CBOE website due to the high volume of traders. However, in another week—this Sunday—the Chicago Mercantile Exchange (CME) launched its own Bitcoin futures market while other stock markets will soon offer their own Bitcoin futures contract. This Wall Street entrance is huge news for the Bitcoin community as it is expected to create ways for Bitcoin to be accepted as a currency or asset.

What Are Futures Contracts?

Futures contract allow the buying and selling of a stock or asset at a prearranged price in the future. In simpler terms, there are two parties involved: the first one is speculating if the asset will increase over time, and the other party speculates on the asset’s loss of value over time. So, the reward will be given to those with the most accurate speculation.

The Effects Of Futures Contracts On Bitcoin

It is believed that the introduction of Bitcoin futures market in stock exchanges the caused the massive price surge. The cryptocurrency started the month of December valued at around $10k  and we’re almost 20 days into the month and it has grown over $9k. Reiterating that its value at the beginning of the year was somewhere around the $1,000 range. But there are other effects of Bitcoin getting into the stock market and we will list them down here with the first one giving Bitcoin the legitimacy it needs.

Legitimizes Bitcoin As An Asset

The availability of the futures market is a key event for the Bitcoin community because it is moving towards legitimacy whether as an asset or currency. When CBOE and CME allowed Bitcoin to be offered as a futures market—to emphasize, in a regulated market—it opened the door for experienced investor and beginners to trade and hedge on the Bitcoin market. In hindsight, since it’s a futures contract the funds do not enter as a capital for Bitcoin, but its effect will be the growth of hedge funds.

Reduces Volatility

In the future, Bitcoin future contracts could reduce the volatility of the cryptocurrency because speculations will require more efficiency and stability, which leads to improved pricing predictions. As soon as the price becomes stable and volatility is reduced, Bitcoin can turn into an efficient and trusted medium for our regular purchases.

Bitcoin may be going against its mantra with its Wall Street entrance, but it seems like a practical and smart sacrifice that brings it closer to mainstream adoption and stable prices. Bitcoin seems to only want its currency to be taken seriously and with confidence that more people will use it. The Bitcoin futures is only the beginning of Bitcoin’s journey.