HOW DO BITCOIN FUTURES WORK?

Bitcoins was created by an anonymous programmer called as Satoshi Nakamoto whose identity and existence is not let verified. Bitcoin futures has ought to become the new trading instrument. People have perceived it as a hard concept to understand but this article will make it easier even for a teenager. 

Futures is a term used in place of ‘contract’ in the financial world. It is an agreement to buy or sell assets for a specific price at a specific price. It consists of signed contracts signed by both the parties despite the current market price. Mining is a very popular concept which ought to be known by any investor. The mining process is done by the computer which help to create new bitcoins. Anyone anywhere can set up their device to maintain an account to mine bitcoins. 

HOW DO FUTURES WORK?

In futures, the individual bets on what the price would be in the future. You calculate and then expect the price of the cryptocurrency to grow or fall so that you buy or sell it. The main key point in the contract is A DEFINATE TIE FRAME which is also known as the expiration date.
Bitcoin futures are related to the bitcoin value which allows the spectators to bet on them. Bit coin in itself is unregulated but the futures are traded on regulated basis.

The Bitcoin futures is based on the price of BTC and it works according to the same contracts as normal stock exchange contracts. BTC futures is a good hedging instrument and involves less risk. 

  • Long contracts: Trader BUYS the contract at CURRENT price and sells it at growth.
  • Short contracts: Trader SELLS the contract at CURRENT price and when the prices decline again, the individual will acquire it again. 

Apart from betting on the market, investors can always sell their contracts before the expiry date. However, trading exchanges like CME and CBOE set high barriers which are normally affordable to wealthy individuals or professional investors. At the present, CME offers its contracts with a minimum price fluctuation of 5$ per Bitcoin with a maintenance margin of 50% which is very high.

For example: If the price of one bitcoin is $2 today. You are expecting the price of bitcoin to rise to 7$ in a month. So you buy a one month contract for 100 bitcoins at the present price (2$) which will make the contract worth $700 after a month if your calculations are right. 

In short when the Bitcoin is higher than your contract price agreement, then you profit from surplus. If the prices of the bitcoin go lower than your contract then you will incur losses. The difference will have to be paid and maintained at the collateral level required by the exchange. 

SOME USEFUL TRADING FORMULAE

If you want your future to work, you can use this simple formulae to calculate the approximate risks. The bitcoin prices depend on spot prices.

Calculating the futures price from the spot price
Future Price = Spot Price * (1+rf-d)
rf = Risk free rate 

However, the user should take in respect the legality of Bitcoins IN THEIR TERRITORY. Only a small percentage of bitcoins are illegal. Most of the transactions and exchanges are legal. Countries where inflation is high, avoid legalizing bitcoins in a fear of loosing the little income they receive. Otherwise, large international transfers through bitcoins take place overseas LEAGALLY. 

What the Crypto Markets are saying about the Future of Bitcoin?

It seems as if bitcoin is on the rise once more. As its underlying market is virtually inscrutable—billions of dollars shuttle between traders in the black market—there is one fundamental change on the horizon. Besides, it has been sliding among a lack of capital inflows, raising interrogations about the future for them in the long-term.  

The researchers have recorded “unusual” moves in the bitcoin futures market, with premium rates rising even as bitcoin prices fall—suggesting the bitcoin price could be headed higher next year

Despite its recent sell-off, many bitcoin and cryptocurrency market watchers are feeling good about next year—bitcoin and crypto heavyweights have been predicting a sudden price surge, technical data is looking positive, and recent developments suggest that this could be a big year for bitcoin

However, the looming bitcoin halving event, set for May next year, will see the number of bitcoins rewarded to miners cut by half and some expects this to boost the bitcoin price—though others disagree

The outlook for bitcoin is the subject of both sides debating on its future existence. Even though the financial media is proliferated by so-called crypto evangelists, the “overwhelming sentiment” among crypto advocates is that the total market capitalization could explode over the next five years.  

The historic volatility of the asset class is no reason to get worked up and panic. Still, the optimism of the crypto evangelist view of bitcoin as digital gold, calling it cluttered; stating its long-term value is more likely to be $100 than $100,000. 

Unlike physical gold, bitcoin’s use is limited to transactions, which makes it more fragile to a bubble-like collapse. Although, the cryptocurrency’s energy-intensive verification process is vastly less efficient than systems that rely on a trusted central authority like a central bank. 

It’s a long way to go before bitcoin becomes a globally accepted form of currency, virtual or not, with some counties having outright banned the use of bitcoin. Though the number of countries is diminishing, with the wider issue being the lack of regulation. Bitcoin itself coupled with concerns over technology limitations. 

The technological development over the short to medium-term will certainly influence the value of the markets and, as a global regulatory landscape develops. In addition to this, we would expect the usage and demand to increase, driving the value, the types of returns that are not apparent with cash, still currently maintaining its cash is king status. 

Advantages of using Bitcoins 

  1. Greater Liquidity Relative to Other Cryptocurrencies 

Being the most popular cryptocurrency by a significant margin, it has far greater liquidity than its peers. In contrast, most other cryptocurrencies either can’t be exchanged directly for fiat currencies or lose substantial value during such exchanges. 

  1. Increasingly Wide Acceptance as a Payment Method 

Hundreds of merchants accept bitcoin payments. If you’re someone that’s being serious about reducing your exposure to fiat currencies, bitcoin’s growing mainstream acceptance is likely to be a big help. 

 

Conclusion

So, what’s next for Bitcoin? As we talked about these coins previously, it has many strong advantages and for this reason, it will remain an appropriate strategy as a currency. A large majority of BTC transactions are made in China in high volume so the two will remain interlinked. 

However, we see the biggest problem and risk to bitcoin being its substitution and/or parallel use by other cryptocurrencies taking its position. Die-hard fans of bitcoins claim that this is never going to be a problem since it was the pioneer and the leader from where it all started and as such enjoys first-mover privilege. 

The argument is probably flawed because although the BTC is used for payments, there is only a relatively small percentage of all bitcoins. The main primary use of bitcoin is being a store of value and for this reason, other cryptocurrencies can always step in and enjoy similar status if aggregate demand requires it. 

We can’t be sure if these coins will work or not on our mere predictions or not. Since they have their market share and lots of people are investing in bitcoins to be secure in the future since they believe in this sort of crypto payment method. The market share is gradually increasing however it’s hard to judge the graph because there will be a lot of differences and fluctuation.  

The real question, however, is that can we be sure about bitcoins being back in the market? Even after all of this, is bitcoin simply the 21st-century version of gold, only without the storage issues? 

Will it be just a short-lived popular fad that may soon evolve into something quite different? Only time will tell. The only certainty for this currency is that its price will remain very buoyant in the future.