Futures Markets Are Pulling Cryptocurrencies Out of the Dark
The rise of Bitcoin futures in the year 2019, is an example of a growing and evolving crypto market. Data shows that future trading has grown from 0 to 50% of spot trading. This growth has resulted in broadening investors, increasing liquidity and reducing volatility. Investors and traders of significant exchange crypto futures suggest that open interest is real money investors placing in new money. Commencement of futures trading in the Cryptocurrency world is resulting in an advantageous development of the market. This article will help you understand how the futures market is pulling cryptocurrencies out of the dark.
Are you puzzled by all this information and not understanding what the futures market is? Then, quickly jump to the next topic and know what is there in the futures market.
What is Futures Market?
Basically, the Futures market is an auction market. Traders and investors buy and sell futures contracts and products that are scheduled to be delivered on a defined date in future at a pre-agreed price. Getting it straight, futures market can be defined as a place where financial products are purchased and sold by agreeing to be delivered at a specified future date with the price determined at the time of agreement. Some examples of futures markets are the Chicago Mercantile Exchange, the New York Mercantile Exchange, the Chicago Board Options Exchange, etc.
Earlier, only agricultural contracts were executed in futures market, but it is more than just agricultural contracts. It now involves buying, selling and enclosing other financial products and future values of interest rates as well. Futures market is a key section of financial market and its size is big as compared to commodity or stock markets.
Cryptocurrency and Futures Markets
Digital currencies are built to act as a medium of exchange and for trading purposes. People have an on and off relationship with the crypto and futures market which has resulted in creating controversy for the Bitcoin futures trading this year. There is a misconception among people that traders performing futures trading on less-regulated crypto exchanges are undercapitalized day traders shifting from spot to futures trading.
There are two elements to this rise of futures markets in cryptocurrency. They are as follows:
- First element– This year, future trading offering is made by all the major digital asset exchanges together with crypto borrowing and lending. Now, this is making easier for any crypto owner to gain interest on their holdings and also make bets in cryptocurrencies based on leverage for future delivery.
- Second element– This element includes gaining open interest value from future contracts. The decision of CBOE (Chicago Board Options Exchange) to drop their contracts, earlier this year, regulated futures trading volume. Open interest followed Moore’s law which doubled every 18 months. Even though open interest is only 0.1% of bitcoin’s total supply, still small figures in rapid growth are worth watching.
Currently, the digital currency has a market cap of $200 billion in which probably about $10 billion is the real money invested whereas rest is paper profits. This is one reason for instability which tends to make crypto market prices volatile. If open interest continues to get double in regulated futures market, it represents a constant increase in origin of real money to stabilize market prices. This does not indicate that it will show a rise in prices, but it means that whatever the prices will be, outcome will be reliable.
Bitcoin futures’ rise this year shows that if the shower of exciting profits happens, cryptosphere would be more nuanced and reasonable than prior crypto booms. Thus, we can clearly say that futures market is showing a good sign for crypto world and making it more genuine and valid among investors.