Friday, 03 August 2018 08:40

Bitcoin Futures 101: Basics, Impact & Future

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If you aren’t overly familiar with the intricacies of the cryptocurrency market, then you may not have a full understanding of Bitcoin Futures, one of the more recent developments in the cryptocurrency world.

But don’t worry; we’re here to help! In this article, we’re going to go over the basics of Bitcoin Futures and what this development means for the cryptocurrency industry as a whole.

About Bitcoin Futures: The Basics

Bitcoin Futures is a relatively new aspect of the cryptocurrency industry that has the potential to stabilize the market and also draw in new investors, sellers, buyers, and traders. To understand how Bitcoin Futures accomplish this, first you must understand how futures in general function.

Futures essentially function as an agreement to sell, buy, or trade an asset or commodity for a specific price at a specific point in the future (in this case, the asset is Bitcoin or another variety of cryptocurrency if applicable).

This adds both security and stability to the cryptocurrency industry because it provides a guarantee for both seller and buyer while also helping to minimize the overall risk of buying or selling cryptocurrencies.

Basically, futures are a type of contract which functions as a risk management tool that helps to protect users against price fluctuations and changing cryptocurrency values that may occur.

Impact of Futures on the Cryptocurrency Market

While the implementation of futures great potential, there is some debate about whether or not the use of futures in the cryptocurrency industry will be of significant benefit or not.

For example, Bitcoin experienced a significant decline after Futures contracts came online in December of 2017. That being said, most research indicates that this sort of decline is normal when an asset first implements futures in their trading arrangements; it’s a perfectly normal market reaction and nothing to be overly alarmed about. In fact, despite that large dip in the market, Bitcoin is once again the most dominant cryptocurrencies in the world, with current dominance at 48.5%.

bitcoin dominance chart

Additionally, the implementation of futures can also help to stabilize the cryptocurrency market by helping to keep prices from fluctuating too drastically, which has always been a problem in the cryptocurrency world.

After all, when prices fluctuate wildly, it often makes potential investors nervous and keeps them from participating in the industry. Utilizing futures (which essentially function as a contract guaranteeing that you will purchase a set amount of cryptocurrency for a set price) can help to remove that uncertainty from the market.

Conclusion

Ultimately, while the acceptance of Bitcoin Futures is still a work in progress for many people, there is no denying the strong impact it has had on the cryptocurrency world so far as well as the potential it has for stabilizing the cryptocurrency market the future. This additional stability in the market also has the potential to draw in more investors, which can only help the cryptocurrency industry to grow and improve even more going forward.

Click here to read more about the upcoming Bitcoin EFTs and the impact it might have on the market.

Future Contracts History:

"The Dutch pioneered several financial instruments and helped lay the foundations of the modern financial system.[3] In Europe, formal futures markets appeared in the Dutch Republic during the 17th century. Among the most notable of these early futures contracts were the tulip futures that developed during the height of the Dutch Tulipmania in 1636.[4][5] The Dōjima Rice Exchange, first established in 1697 in Osaka, is considered by some to be the first futures exchange market, to meet the needs of samurai who—being paid in rice, and after a series of bad harvests—needed a stable conversion to coin.[6]

The Chicago Board of Trade (CBOT) listed the first-ever standardized 'exchange traded' forward contracts in 1864, which were called futures contracts. This contract was based on grain trading, and started a trend that saw contracts created on a number of different commodities as well as a number of futures exchanges set up in countries around the world.[7] By 1875 cotton futures were being traded in Bombay in India and within a few years this had expanded to futures on edible oilseeds complex, raw jute and jute goods and bullion.[8]

The 1972 creation of the International Monetary Market (IMM), the world's first financial futures exchange, launched currency futures. In 1976, the IMM added interest rate futures on US treasury bills, and in 1982 they added stock market index futures.[9]" Source: Wikipedia

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