Bill Gates claims he would short bitcoin if he could. Well I’ve got good news Billy, you can!
So what exactly are futures?
Futures are an agreement to buy or sell an asset on a specific future date at a specific price. In a sense you are making a bet that the future price will be more attractive to you than the current one, no matter what side of the future you are on.
Once the futures contract has been entered, both parties have to buy and sell at the agreed-upon price, irrespective of what the actual market price is at the contract execution date.
Here’s an example: So let’s say that Bitcoin is at $7,000, and you agree to buy into a future that has a term of one month, and the price of the future is going to be set at $9,000. If you think that bitcoin’s price is going to be higher, well then you take the over on that bet, since you might find a situation where you have the opportunity to buy bitcoin for $9,000 that has a real time market value of 10k, 11k, 20k.
However for any market to work, there has to be someone putting their money behind the opposing opinion. Some people, like our friend Bill Gates, might think that price is lower. They can short bitcoin by taking the opposite side of the future. Ideally for them, they will have an opportunity to sell bitcoin at a price that is higher than current market value.
So a bitcoin future is basically a bet on the future price of bitcoin. It’s really just another tool to speculate on the value of bitcoin.
But we got a little ahead of ourselves. Futures have been around for a long time in the traditional stock market,. However bitcoin futures are a very new implementation.
Around the beginning of December 2017, the CME announced that by mid month bitcoin futures trading would be up and running. Despite being the first to make the announcement, the CBOE, a competing exchange, swooped in and launched bitcoin futures trading exactly one week before CME was supposed to.
Is this good for bitcoin?
Back when this all went down, there were several who thought it might not be a great idea to place further speculation on such a speculative asset. Some saw potential arbitrage plays. Some thought it would drag down the price of bitcoin, while others insisted that introducing bitcoin futures was a much needed step towards legitimization of the cryptocurrency.
Well some time has passed and according to some reports, we do have an answer. These reports concluded that the introduction of bitcoin futures by CME and CBOE likely caused a decline in bitcoin’s price. But does that mean bitcoin futures were necessarily a bad thing? Some argued that this was going to have to happen to bitcoin sooner or later as it became a more established asset.
It is definitely fair to say that the introduction of bitcoin futures brought a lot of attention to cryptocurrency, and therefore it advanced business on the blockchain.
There’s definitely some dispute over the effect that futures had on the market, so go disagree with each other down in the comments. We’ll have the popcorn ready.
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