The Allure of Bitcoin Futures Trading

Bitcoin futures trading continues to grow since both the CME and Cboe launched their futures contracts in late 2017. Experts believe that the reduced volatility, as well as clearer regulations, make the market more appealing to mainstream investors.

Bitcoin Futures Trading Continues to Grow

Market analysts say Bitcoin futures trading continues to be popular among mainstream investors. Commenting on the steady growth, Tim McCourt, the head of equity products and alternative investments at CME said:

We see continued growth both in terms of the average daily volume and open interest. The volume has steadily increased compared to when it was first launched in December. This is not a one-sided product because we have both supply and demand. Customer demand is strong because the relationship between the futures and cash market have a tight basis spread.

Reports from CME show that there was a massive spike in Bitcoin futures trading on July 5, 2018, with 6,739 contracts. This figure is significantly higher than the daily average of 2,800 contracts. Mati Greenspan of eToro said that the spike was a misnomer given that there wasn’t any corresponding surge in Bitcoin’s price during the same period.

Less Volatility and Better Organization

Bitcoin, like many other cryptocurrencies, is prone to wild price swings. Thus, spot trading does come with the added hazard of realizing spectacular losses if the price trajectory follows an unfavorable path. Many experts believe that Bitcoin futures contracts offer a path to the asset without the issue of volatility.

Commenting on this observation, Andrew Wilkinson, the chief market analyst at Interactive Brokers Group said:

Compared to the spot market, the bitcoin futures market has less volatility and is slightly more organized. The luxury of the futures market is that you can take advantage of price movements and there is better price transparency.

However, Bitcoin futures trading also has its downside. According to Wilkinson, the lack of liquidity and enthusiasm are prominent issues in the market. Wilkinson also identified the inability of investors to pull out of a long position when prices begin to decline as another problem for the market.

Cash Settled Futures Have Minimal Impact on Bitcoin Price

Despite the apparent popularity of the market, trading in Bitcoin futures doesn’t yet constitute a problem for the asset price. On several occasions, many analysts have pointed to the introduction of the CME and Cboe BTC futures trading as a reason for the Bitcoin price slide.

This reasoning fails on two accounts. First, BTC futures contracts are cash-settled meaning that there is no movement of the underlying asset. Thus, the futures market has no adverse effect on asset volume. Secondly, the total BTC futures market is merely a drop in the ocean compared to the spot trading Bitcoin market. Therefore, the idea that BTC futures have affected the price of Bitcoin is factually incorrect.

Do you think the Bitcoin futures can grow to a level where it begins to impact the price of the asset? Keep the conversation going in the comment section below.

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