Bitcoin Futures Trading – How Cryptocurrency Derivatives Work?

Bitcoin Futures Trading – How Cryptocurrency Derivatives Work?

CME Group is an American financial market company that operates futures exchanges and large derivatives in Chicago, New York City, and facilities in London through the use of online trading platforms. Recently they have announced that there is a plan to start listing Bitcoin futures contracts, which will be launched on December 10th of this year.

Bitcoin is very close to becoming a soon to be accepted asset class, but many have questioned cryptocurrencies’ ability to do so without a market which can be shorted or hedged against. The lack of a system of derivatives around Bitcoin has caused nothing but trouble when attempting to approve numerous endeavors for Bitcoin-ETF. The Securities and Exchange Commission has been having difficulties with setting up Bitcoin-ETF since the beginning of this year. However, once futures on Bitcoin are in place, completing the setup of Bitcoin-ETF should be a snap.

After this setup is complete and ETF are ready to be invested into, chances are many investors will jump at the opportunity to invest in Bitcoin and even other cryptocurrencies. The primary reason is that an ETF comes with regulations. These same regulations offer trust and simplicity to the system. Once all of this is in place, more investors will be comfortable with dedicating their funds to Bitcoin.

Collateralized Debt Obligations And Bitcoin Futures

As with any new idea and proposed changes in the market, there are a few critics who are questioning the adaptation of Bitcoin with financial derivatives such as futures. Such a move is being looked at by many with great uncertainty. One of the biggest contributors to the crisis of 2008 was CDOs (collateralized debt obligations) and many skeptics think that there will be a direct relationship between bitcoin derivatives and CDOs. The main worry is that just like CDOs during the 2008 crisis, which was fully understood by the banking industry and no one else, the Bitcoin is similarly an unknown within the financial world.

If Bitcoin becomes incorporated into the industries business, all who are criticizing whether anything has been learned from the crisis of 2008 will instantly become validated. This is the argument which is constantly being used when the idea of Bitcoin adaptation by Wall Street is brought up. We fear the unknown.

One of the more interesting thoughts is that many who are Bitcoin enthusiasts are actually supporting the idea of Bitcoin being adopted into the financial system and for a good reason. Many of these people believe that once Bitcoin is incorporated into Wall Street it will inevitably demolish Wall Street. They are completely against Bitcoin being embraced by the banks which it was meant to replace in the first place. If you read the whitepaper which was written by Satoshi Nakamoto, the creator of Bitcoin, it becomes pretty clear that adaptation of Bitcoin into Wall Street is not what was envisioned when Bitcoin was invented.

Many in the Bitcoin community think that the Wall Street money which is currently inflating the price of Bitcoin will inevitably burst the biggest credit bubble in financial history. When this happens, enthusiasts think that the players at Wall Street will have an extremely hard time gathering enough liquidity to settle the debt created by the burst. In the end, the money which is being funneled into Bitcoin at the given moment will disappear just as quickly as it appeared in the first place.

Obviously, this ideology of the big bubble burst is not why the bankers at Wall Street are interested in Bitcoin. As with anyone who has ever invested in the market, the idea is to make more money. Using Bitcoin to diversify their portfolio and the portfolios of their clients will be more profitable, which is why it is expected that any serious fund manager will inevitably end up using Bitcoin in a few years.

Since Bitcoin is completely new and is in the early years of its development, having little relationship with the organization of traditional assets and nearly no background, chances are it will be seen as more of a hedge against this bubble we are currently in. However, even though the relationship between Bitcoin and other traditional markets is somewhat negative, over time this correlation will deteriorate and more and more markets will end up using cryptocurrency.

Bitcoin Futures Trading Conclusion

So, in the end, the reality is that not everyone in the Bitcoin community is going to be happy about the adaptation of Bitcoin by Wall Street, which is understandable. However, one also needs to understand that this adaptation shouldn’t be as problematic as some might think. The fact is that not even Wall Street is capable of collapsing the Bitcoin decentralized structure.

In the end, you should take the news of Bitcoin futures as neutrally as possible because you don’t have control over what the financial system decides to do with Bitcoin. The good news is that you have the opportunity to get into an asset class for the first time in history before Wall Street, as have so many others who already own Bitcoin. At the moment, Wall Street is still hindered by the environment which they have created, which is dragged down by regulations. Bitcoin is not. Luckily, you still have a few days to get yourself into this asset.

Your best bet right now is to take a neutral stance. There is no need to cheer for joy or mourn the Wall Street adoption of Bitcoin. Just sit back and get ready for whatever is about to happen. This way you won’t be thrown off guard by something unpleasant that might occur, but at the same time, there is no need to assume that all is lost and Bitcoin is ruined. Be a realist and get ready for any situation, it is the best way for you to come out on top and not let this adaptation sweep you off your feet. After all, chances are a little bit of both will occur since there is a grain of truth on both sides of this Bitcoin adaptation.