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Bitcoin Futures trading now a reality broadening investors choices

Bitcoin Futures

Bitcoin futures are now a reality at least for pro-bitcoin investors. The Chicago board of options trading (CBOE) started trading in bitcoin futures on 10th December2017. The first Chicago Mercantile Exchange (CME) bitcoin futures contract closed successfully on 17th January 2018 at a price of $10,900. Following this success, more investors might consider investing some of their money in the bitcoin futures. This will effectively boost bitcoins credibility.

What are futures contracts?

Essentially futures contracts are such that financial contracts in which a buyer is obligated to purchase an asset at a future agreed date and price. A seller in a futures contract is obliged to sell a commodity at a prior set price and date in the future. Normally, investors in futures contracts opt to roll over their contracts over a period of months but considering the uncertainty surrounding bitcoin, investor could opt for a different approach. Currently, bitcoin futures are settled in cash and this has raised some concerns. The concern is that this mode of futures settlement could see investors manipulate the futures contracts at the close by buying or selling aggressively. The fact is, however, if this happens, arbitragers will step in to restore some semblance of control in the process.

Institutions backing bitcoin futures

One of the reasons why bitcoin has not achieved full adoption is the absence of backing by reputable institutions which would boost its credibility. The bitcoin futures have however been received with a rather warm embrace. To start off, the listing of bitcoin futures by CBOE is in itself a major boost for bitcoin. This has gone a long way in changing people’s perception about bitcoin and cryptocurrencies.

It is important and interesting to note that some financial institutions have jumped on the bitcoin futures bandwagon as well. Goldman Sachs, one of the largest banks in the world is one of the financial institutions clearing bitcoin futures trades for its clients. Additionally, Morgan Stanley has opted to take after Goldman Sachs and is now clearing bitcoin futures trades for its clients as well. Johnathan Pruzan, the chief financial officer of Morgan Stanley, acknowledged this during an interview with Bloomberg.

In addition to the institutions cited above, some major brokerage firms are also allowing some of the clients to trade bitcoin futures on their platform. These brokerage firms include E-Trade, TD Ameritrade and Interactive Brokers. Notably, Nasdaq, the second largest stock exchange in the world is in the process of evaluating whether it should allow for bitcoin futures trading. This would put it in direct competition with CBOE and CME which are already offering these financial assets. Nasdaq has not stalled in launching its bitcoin futures product due to skepticism of this product’s going concern. Instead, the exchange intends to launch a product that will unique and different from its competitors. Moreover, the exchange intends to support more bitcoin futures transactions in the course of the second quarter of 2018

According to Nasdaq Ceo Adena Friedman, ‘We have two exchange-traded notes that are listed in our Nordic markets … one is an Ethereum ETN, and the other is a Bitcoin ETN. So we would look more holistically at cryptocurrencies, not just at one.’


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