BitCoin futures: the new reality of investments
During the past year we heard a lot about Bitcoin and blockchain technology. The success of these innovation quickly brought the diffusion of other cryptocurrencies! In this article we deal again with this topic because the financial market just welcomed a new product: Bitcoin futures. What’s going to happen?
A recap of futures
Let’s remember what are futures: contracts with an end where two parties place a bet on the price of an asset in a specific future date. The winner gets paid in cash or with the good itself, according to the type of contract. When the good is a currency, then we talk about financial futures.
The arrival of Bitcoin futures in the market
The quick diffusion of this cryptocurrency and the increasing of its credibility pushed many financial firms beginning Bitcoin futures exchanges. The first was Cboe Global Market, that began on 10th December, followed by CME Group from today. Other competitors are preparing the launch of their own products and at the moment are laying on the ones provided by Cboe.
There are some important consideration though. First of all, payments aren’t in Bitcoin but in cash: this means investors can speculate on the cryptocurrency without touching it. Another point to remember is the obligation to put aside at least 44% of the settlement price for Bitcoin, due to the market instability. This characteristic is different from what tipically happens with futures contracts, where the requested margins is usually about 10%.
Where to buy Bitcoin futures contracts
Not all the financial firms participate to Bitcoin futures exchange started last week. JPMorgan, Societe Generale and Citigroup didn’t took part in the opening of the market; other societies like Fidelity, Etrade and Charles Schwab won’t allow their client these exchanges for now. Some institutes, like TD Ameritrade, prefer a careful approach and are preparing their financial products while waiting for a better situation of the marketplace.
Pros and cons of the novelty
Even though some big names didn’t take part in the exchanges, the launch of Bitcoin futures will bring many positive effects like a greater participation of financial firms. The market itself will improve activities and exchange options for products based on the cryptocurrency!
Nonetheless, the volatility of Bitcoin’s market and security problems still represent important issues. According to critics, the main risk is that instability will spread to the rest of futures market.
As it often happens, IT security is one of the major risks in every business. What do you think about? Will financial market be able to take benefit from technological innovations?