Cryptocurrency Futures: How Do They Work and How Will They Impact Crypto Markets?
Bakkt’s Bitcoin futures launch is a critical turning point for crypto markets.
Futures trading is seen by many experts as the development that finally brings in institutional investors — crypto’s long-awaited dream and also its biggest challenge so far.
In this article, we’ll look at what cryptocurrency futures are and how they’ll impact the market.
What Are Cryptocurrency Futures?
Crypto futures work like typical futures contracts, with cryptocurrencies being the asset hedged on instead. Once a contract is established, parties have to buy (long) and sell (short) their holdings at a set price determined prior to the agreement. These two actions still happen even if the value of their assets differ from actual market prices at the contract execution date.
Futures contracts are popular because traders can speculate on crypto prices (usually Bitcoin) without owning the assets since they’re ‘betting’ on future value. This does not require asset ownership, hence reducing the complexity involved in trading cryptocurrencies.
Risk management is often the goal of futures as they stabilize returns in markets with fluctuating prices. The volatility of cryptoassets is a great fit for futures since investors can minimize their risks while turning satisfactory profits in the long term.
Looking at Bakkt: The First Bitcoin Futures Provider
Bakkt is the first regulated exchange that offers Bitcoin futures trading aimed at institutional investors. The platform is the brainchild of the Intercontinental Exchange (ICE) who also owns the world’s biggest stock exchange, the New York Stock Exchange (NYSE).
What sets Bakkt apart is its physically-backed futures contracts. Most Bitcoin futures providers handle trades in cash since investors don’t need to own Bitcoin. Bakkt, however, requires physical ownership of Bitcoin or any cryptoassets available in the future for that matter.
When a contract expires in Bakkt, Bitcoin will be delivered or sold from an investor’s wallet instead of receiving fiat. This is great for crypto growth since traders need to buy Bitcoin, increasing the flow of institutional money into the market.
How Will Futures Impact the Crypto Industry?
1. Improved Institutional Investor Confidence
Bakkt’s numerous accreditations and certifications make it attractive to institutional investors. Not only does the platform adhere to the U.S. Commodity Futures Trading Commission (CFTC) regulations, it also implements strict AML and KYC rules in addition to complying with federal reporting standards.
The nature of Bakkt’s physically-backed Bitcoin futures also eliminates market manipulation since investors can’t short their assets to influence prices, otherwise known as naked shorting. This, along with thorough security features, will improve institutional investor confidence significantly in hedging their bets against cryptoassets.
2. Promotes Crypto Markets to Mainstream Audiences
The entrance of institutional investors and improved platform regulations may spark the interest of retail investors to dabble in crypto markets. This is already happening today with companies like Bakkt that are often painted in a good light in mainstream media.
Regulated markets combined with active institutional investment will foster trust in cryptoassets, which is needed considering the bad rep the industry has received in the past. Increased trust will ultimately lead to more investors entering the market, contributing to the growth of cryptocurrencies and the blockchain industry as a whole.
3. Healthy Competition in the Cryptosphere
Bakkt’s launch offers a glimpse of how investors can benefit from a futures platform. There’s no doubt that competition is fierce as companies look to capitalize on increased institutional and retail investor involvement. Healthy competition is one of the indicators of a prosperous market, so expect more exciting developments to pop up in the following years.
4. Positive Price Movements
As mentioned earlier, investors must buy Bitcoin to participate in futures contracts, thus injecting a significant amount of capital into crypto markets. This will lead to positive price movements as long as futures platforms are in demand, which is inevitable since 50% of institutional investors are considering adding cryptoassets to their portfolios.
Along with Bitcoin’s mining rewards being halved to 6.25 BTC per block this coming May, investors are expecting a major price increase for Bitcoin and other cryptoassets with the market looking increasingly attractive since the infamous 2018 crash.
How Does Blue Swan Help Investors Keep up With the Latest Futures News?
Investors looking to make the best out of crypto futures need to be aware of the latest news and updates involving cryptoassets. However, we understand that keeping up with the latest updates can be tedious and time-consuming.
This is where our crypto market intelligence system comes in handy.
Blue Swan, our professional-grade, multi-channel big data platform gives investors everything they need to know about the latest updates and news about crypto futures.
Blue Swan Grading benefits investors immensely by offering a comprehensive crypto analytical framework that aggregates and analyzes essential data from a diversity of sources, offering a comprehensive market overview.
Blue Swan does everything from analyzing news and media coverage to assessing project development status. The platform also takes into account the skills and reputations of the teams behind crypto projects while keeping up with their regulatory compliance (or lack thereof). In short, the platform offers unbiased market analysis and project ratings and classifications that investors need, allowing them to make faster and smarter trading decisions.
Blue Swan Grading also offers API tools and customizable features for developers to make full use of the platform.
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