What Are Bitcoin Futures, How Do They Work and How to Invest in Them?

What Are Bitcoin Futures, How They Work, How to Invest in Them?

Over the last few years, speculations have been rife on the introduction of regulatory guidelines and institutional investment in cryptocurrencies. But keeping up with all the development can be tough for the average crypto enthusiast.

The challenge of predicting the future of Bitcoin and other cryptocurrencies led to the development of Bitcoin Futures in 2017.

To understand what Bitcoin Futures are, it is important to first understand what “futures” mean.

Futures best known as an “agreement to buy or sell an asset on a specific date at a specific price”. Entering an agreement to buy or sell an asset in the future compels the trade to take place between the parties at the agreed price when it matures. The agreed-upon price remains, irrespective of the actual market price at the time of contract execution.

The goal of entering into such an agreement is to manage risk associated with Bitcoin price volatility.

So what are Bitcoin Futures?

Bitcoin Futures is a contract made between future buyers and sellers of Bitcoin. In this arrangement, speculators bet on what they believe will be the price of Bitcoin over a certain period. Investors can also speculate on the price of Bitcoin without the actual owning of Bitcoin.

This kind of arrangement has two main implications:

1. The first implication is that even though BTC remains unregulated, you can buy, sell, exchange and trade Bitcoin Futures on regulated exchanges. As such, your concerns as a trader about the risks involved in the unregulated crypto industry.

In other words, you will not suffer any price fluctuations of Bitcoin prices in the future. Although the industry remains without a central authority to regulate the number of coins in the market, as well as prices.

2. The other implication is that Bitcoin enthusiasts from regions that have banned the world’s most popular crypto can still speculate on the price of Bitcoin for future purchases.

How does a Bitcoin Future work?

Bitcoin Futures offers investors two options for the future contract: going long or short on their investment plans.

Taking a long position means that you agree to buy Bitcoin at an agreed price when the contract matures. Taking a short position, on the other hand, simply means you agree to sell your Bitcoin at a set price when the contract matures.

The common ground for the seller and the buyer is that they are all speculating on whether the price will go up or down. When the two agree on the expected future price, they can enter into a contract to sell and buy at a specified price and timeframe.

How to Invest in Bitcoin Futures

Unlike trading on the underlying cryptocurrencies such as Bitcoin, Futures involve buying and selling contracts. Hence, do not require a Bitcoin wallet because no physical exchange of Bitcoin takes place in the transaction.

Bitcoin Futures are available in two markets for traders.

The first markets are in selected cryptocurrency exchanges, including Coinbase, Kraken, and OKCoin among others.

The second market is buying from the publicly regulated exchanges, which has significantly increased Bitcoin’s acceptance in the mainstream financial markets.

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