Bitcoin continues to find strength above $11,000, as each time it has dipped below that, it has bounced back within 48 hours. It currently sits at $11,300, but who knows where it will be by the time you are reading this article. 10% dips and price increases seem to happen on a daily basis.
One of the factors that is increasing the price of Bitcoin is the thoughts that a futures market is soon to open for the cryptocurrency. For those unfamiliar with futures markets, the essential work as a way to help predict the future price of an asset based on opening a market for the promise of delivery of the asset in the future. You can think of a farmer who doesn’t know what crop to plant. He can look at the futures market to determine what he should cultivate and harvest months from now by seeing what is most profitable for him. While using a farmer as an example, there are futures markets for most assets that you can think of.
Money is made in these futures markets by individuals either taking a “short” or a “long” position agreeing to either buy or sell Bitcoin at a specific price in the future. The buyer hopes to buy the said amount of bitcoin at a more favorable price (hoping Bitcoin goes down in price), or to sell Bitcoin at a higher price at the settlement date.
While the goal of futures markets is to stabilize prices while creating wealth for those in the industry, the creation of a Bitcoin market is going to have a bit of a different effect, at least at the beginning. The fact that futures markets are being created is proof of mainstream acceptance. Bitcoin has been such a niche “asset” (though calling it an asset isn’t exactly correct due to the possibilities of the blockchain) for years, that being traded on the NASDAQ and elsewhere would mean that it is here to stay.
A lot of the recent price increases have factored this in already, but I still believe more growth will come once they are official. The CBOE Global Markets today said that Bitcoin futures trading is supposed to begin on December 10th, and Nasdaq said they would launch Bitcoin futures in the second half of 2018. Not only is this good news for Bitcoin, it helps stand it apart from the smaller altcoin options. If you are fairly new to Bitcoin you would be surprised to find out there are 100’s of other coins based on the same blockchain that all have been rising in value lately. Many think Bitcoin is not the final solution to cryptocurrencies, one problem of which being transaction times of over an hour for full verification. Having a futures market for Bitcoin, but not the alternative cryptocurrencies, will help grow its market acceptance even faster than it already has.
While there are individuals who will buy and increase their contracts because they think Bitcoin will continue to rise in value, don’t forget that this is opening the market to professionals who are well aware of the extreme volatility in Bitcoin. Speculators will open short and long positions multiple times every week, using technical analysis to predict market movements, making a small profit for each contract they hold. This is one reason it isn’t recommended to invest money into these futures markets unless you are a well-seasoned trader – or are willing to gamble. If you believe in Bitcoin, you should buy the coin. The extreme amount of trading that will be done by full-time professionals (and perhaps computer algorithms) on these markets will make it so that any knowledge you may have about the blockchain and the bitcoin network won’t really matter.
We’ll check back soon to see how the CBOE futures market is accepted once it is offiically open.