Bitcoin 2021 - The Rise of a New Monetary Standard: The Revolutionary Guide for Beginners to Master the World of Cryptocurrency and Blockchain - Discover ... Only Profitable Bitcoin Investing Strategy by Nakamoto Masaru & Swing Charles

Author:Nakamoto, Masaru & Swing, Charles [Nakamoto, Masaru]
Language: eng
Format: epub
Published: 2021-04-20T16:00:00+00:00

Chapter 15 - Bitcoin Futures

In the previous chapters we always talked about buying “physical” bitcoins. However, the financial world is incredibly fascinating and has the ability to create financial instruments that are extremely complex and have no direct contact with “reality”. Since this book is about Bitcoin, we feel it is extremely important to talk about the less known possibilities you have to interact with this asset. Therefore, in the next few pages we are going to cover everything you need to know about futures.

Many people are wondering how bitcoin futures work. From a strictly technical point of view, these are normal futures contracts, as they have been in the financial markets for a long time. Their peculiarity lies in the fact that they have BTC as an underlying asset.

In fact, futures contracts are precisely contracts between two parties for the purchase or sale of goods at a future date, or on expiration, and at a specific price agreed between the parties themselves. Upon expiry of the contract, the parties are in fact obliged to honor the agreements, buying and selling at the previously agreed price, regardless of whether the price of the underlying asset may have decreased or increased in the meantime.

They are used as a kind of insurance against the risks of price fluctuations. However, very often they are used to speculate as well. They are also exchangeable, i.e. once a futures contract has been issued it can be sold on the market by the parties who have signed it. When a futures contract is signed between two parties, one agrees to buy and the other agrees to sell. Those who decide to buy the underlying are said to open a long position, while those who decide to sell are said to open a short position.

Futures contracts were created specifically for the exchange of commodities, but in fact they can be used to trade any asset, including purely financial assets, such as bitcoin or other cryptocurrencies.

Bitcoin futures can be used to protect yourself from significant fluctuations in the value of BTC, but in reality very often they are used to speculate on the price of BTC without actually owning the coins.

Furthermore, many exchanges that allow BTC trading are not fully regulated, while those that allow BTC futures trading, such as ICE or CME, are fully regulated. Futures allow trading even for those who do not trust unregulated exchanges, or those institutional investors who simply cannot invest in markets that are not fully regulated.

Each single contract contains a certain volume of the underlying asset, and in the case of bitcoin futures this volume is usually 1 BTC. There are also futures contracts based on physical bitcoins, such as those of Bakkt, and others based on indexes that replicate the price, such as those of the CME.

Those not based on physical bitcoins are settled in cash, i.e. at maturity the exchange takes place in normal fiat currencies, and not in BTC. Since the first bitcoin futures contracts were placed on

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