Futures are contracts. They are used to commit itself to buy or sell an asset or a financial asset in the future at a given price and at a given time (i.e. at deadline).
They are standardized as they can be exchanged very easily, and expect that, upon their expiration date, the owner respects the commitment made at the time of their issue.
In theory, they should serve as a form of “insurance”. Let’s give an example, if you are committed to sell a certain asset, at a certain price and at a certain time, you then have the guarantee to be able to sell it. What happens in reality is that they are used above all as a financial tool to speculate on the contract object.
Up to now, two futures have been created with same object Bitcoin: one is CBOE and second is CME. Both are traded on the Chicago Board of Trade, which is one of the world’s most important futures and options exchange.
Unlike cryptocurrencies, futures are regulated financial tools, which are traded on regulated institutional markets, and therefore are also accessible to institutional investors (who need guarantee) and to large traditional investors (who need security). In fact, many institutional investors, such as pension funds, cannot invest in unregulated markets, and without guarantees, such as cryptocurrency exchanges.
Therefore, Bitcoin futures are mainly aimed at those who cannot act on unregulated markets, and those are seeking maximum security.
However, they are clearly speculative tools, so much so that since they were introduced in the cryptocurrencies’ world (December 17th, 2017) they seem to have played a crucial role in determining the Bitcoin and altcoins price trade.
In fact, it’s not a coincidence that the peak Bitcoin value ever reached occurred precisely on December 17th, 2017, and that after this date the price has started to fall. First, the enthusiasm for the first futures realise was such something that it contributed significantly to the speculative bubble emergence at the end of 2017, but as soon as it was released the enthusiasm suddenly vanished.
Moreover, at the first futures time, and in particular those of the CBOE on January 17th, 2018, there was a real collapse, with a loss of more than 40% of Bitcoin value in just 10 days.
Several analysts have claimed that the January crash was due to a downward speculation made possible by the futures use, and this trend seemed to be confirmed at other moments when other contracts were expiring, usually always at the CBOE.
Therefore, there seems to be a correlation between the speculations on CBOE futures and the Bitcoin price itself, which could be influenced by such speculations.
Moreover, even the same Bitcoin price volatility, which had risen a lot during the formation of the speculative bubble at the end of 2017, began to decline since the first futures contracts began on January 17th, 2018. Someone guesses that one of the effects that Bitcoin futures could have is precisely to stabilize the price a bit, reducing its volatility. This, on June 2018, fell even below 3%, as it did not happen since May 2017.
Bitcoin futures are therefore a useful financial tool especially for large speculators who don’t want or cannot invest directly on exchanges, and are able to influence Bitcoin and cryptocurrencies values. As often happens, they certainly have dark sides, or even harmful, but also have positive and useful sides (especially for some investors categories).