All traders of bitcoin should mark in their calendars for two important dates: December 10 and December 18. In these days CBOE and CME group will start trading in futures and options on bitcoin. Later they may join the other traditional exchanges. However, not all traders understand what these events mean for the community and how it can change the situation in the last two weeks of 2017. The main features of futures for bitcoin were set out earlier in this article.
The market of bitcoin can be compared to a river. Its flow depends on a constant value, and so it usually flows in one direction. On the other hand, the futures market for bitcoin is like the ocean with a thermohaline circulation: it depends on several variables. Sharks of the futures market is not friendly – they will do everything to earn, even if this will have to go over the heads of other market participants.
If you examine the latest publications, representatives of the bitcoin community on Slack, Reddit, or Telegram, you can be sure that most social networks there is an optimism of bitcoin prices in anticipation of the opening of futures trading on major commodity exchanges. This optimism is a product of misunderstanding of how futures markets.
There is a misconception that futures markets behave similarly to real markets of financial instruments. However, the principles of these markets are diametrically opposed. The real markets of financial instruments (e.g., stock exchanges and bitcoin exchanges) was created for direct investors, the futures market was created to hedge against risks.
Investors go to the real markets of financial instruments, because they think that the asset value will increase. Hedgers go to the futures market because they don’t want the price of the asset left them sideways. You can’t «sell» in the markets of real tools if you are not the owner of the underlying asset. In futures markets there are no such restrictions. You can make a sale, regardless of, you own the underlying asset or not.
The farmer who grows corn, sells a futures contract, because he is afraid that the price may fall, and wants to guarantee a price for his corn, when he will gather the harvest. Producer that uses corn, and buys futures contracts because he is afraid that the price of corn will rise and wants to limit the price he pays for the product.
What will happen next
On the futures market for corn the farmer and the producer — hedgers on opposite sides of the market. Thus, they create a kind of balance. Of course, market makers and speculators need to create additional liquidity, but mostly they rely on the existence of hedgers.
On the futures market for bitcoin the only groups that need to hedge are miners and current holders of bitcoins. Miners will sell futures contracts to ensure that they at least get a price for bitcoin they expect to produce in the future. The owners of bitcoins will do the same to hedge price deviation.
It turns out that investors no hedgers. It unintentionally provokes pressure on the price deviation. It turns out that the only group that can support price stability and maybe even increase it — a group of speculators. Unlike the miners and holders of bitcoins, the speculators will consist of bulls and bears. For the most part we saw the bulls power on the market of real financial instruments, but until the advent of the futures market we saw all of the possibilities of bears.
Bears will crush the bulls? Or Vice versa? Nobody knows. Will the launch of futures trade on the bitcoin to increase the price of cryptocurrency? Nobody knows. One thing is clear – if you have enough bitcoins, that you are constantly trading, you should carefully read the principles of operation of the futures market. Do not just go with the flow and hope that innovations will not affect your capital, especially if it is in active trade.
Keep in mind only one thing: after the launch of futures on commodity exchanges will rush to market a huge flow of money, and with it will come «whales» and «sharks» are not interested in the future of bitcoin — they only want profit. All the money will not join in the purchase of real cryptocurrency, but only in the trade «air» is not provided by the underlying asset of the derivative instruments. If many experts call «air» and «bubble» themselves cryptocurrencies, some substance to consider them as derivatives?
Where shall this thread and how it will affect the price, now nobody can predict. And even the volatility of the market with a multiple increase in liquidity not only did not decline, but even to grow — at least for a time, until you have satisfied the appetites of the most active speculators, and finally divergent positions will not balance each other. To stabilize the market, it may take several months. But after that futures trading will greatly affect the price of bitcoin, and large adjustable area may become the major sources of the quotes, replacing the market with highly specialized cryptocurrency exchange, which narrowed to gateways between cryptocurrencies and Fiat money.