Bitcoin impressive run to record highs of $16,000 will face its biggest test in the coming weeks as exchanges open their doors for Futures Derivatives. The crypto currency has been trading in an uptrend, but with the entry of Futures, investors will now be able to play ’both sides’ of the market.
Two Sided Market
A two-sided market is something that has not been put to test when it comes to bitcoin trading. CME Group and CBOE Global markets are set to change the landscape in the coming days in a move that could have significant impact on the crypto currency’s future
The opening of Bitcoin Futures will provide institutional investors and high-speed traders an opportunity to bet on the digital currency’s wild swings. News of the Futures derivatives sent the cryptocurrencies to record highs after registering a record single-day gain of $2,500.
Futures introduce a different type of playing the game. As it stands, the market has rewarded all investors regardless of the number of coins that one owns. However, with the introduction of bitcoin futures big name players are set to enter the game.
The new players have the potential to drive the market down given the amount of money they are set to inject into the market. Futures were designed with a sole purpose of hedging against the risk. They provide one of the surest ways of benefiting when things go bad.
Bitcoin Futures Impact
With Futures, contract miners will be able to get the price for the coins they intend to mine in future. Holders are already doing the same thing as they hedge their downside. As it, stands there is no hedger on the buying side, something that has consistently piled pressure on the downside. The equilibrium has always been met with a strong bull market thus preventing bitcoin from collapsing
The futures contract will make it easy for investors to play both sides of the cryptocurrency market unlike in the past. With the digital currency, trading at record highs on mere speculation there is now a strong reason to be a bear and make a considerable profit by hedging against it.
Bitcoin has experienced volatility never seen before if price gains of up to $2,500 in a day are anything to go by. With the entry of new money from institutional investors, volatility levels could get out of hand, to the disadvantage of a normal investor on the wrong side of a trade.
The volatile nature of bitcoin with the introduction of Futures derivatives could also present another risk for clearing houses which act as middlemen between parties involved in transactions. Wild price swings could make it impossible for smaller brokerage firms to meet their margin calls which would make them to fail.
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Image courtesy of Richie Diesterheft via Flickr
Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.
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ur welcome pic.twitter.com/e2KF57KLxb
— Elon Musk (@elonmusk) February 4, 2021
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Hong Kong, Hong Kong, 25th January, 2021, // ChainWire //
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