Prices Set to Make New Highs as Bitcoin Futures Launch Date Approaches
And so it’s confirmed! December 18 is CME’s official Bitcoin futures launch date. Why is this a big deal? Because this launch is going to spur a new era in the crypto-world. This is when Bitcoin prices could burst into another major rally.
Let me explain why this is a game-changer for Bitcoin.
Say, you’re new to cryptocurrency investing. You’ve just heard of Bitcoin—a digital currency being touted as a gold-like, safe-haven, investment alternative to fiat currency. You hear that the world is just opening up to this new idea and Bitcoin prices are skyrocketing. All this is music to your ears at first. That is, until you realize that you’re not a tech junkie and do not understand the technicalities of this technology-based investment.
What the heck is Blockchain? What is a Bitcoin wallet? What is a hot versus cold wallet? What on earth is Bitcoin mining? These and similar questions boggle many investors.
You don’t wish to learn the technical nitty-gritty of Bitcoin. All you want is to gain exposure to Bitcoin price movements. You speculate that prices are going to move in one direction or the other and you simply want to place a bet without having to go through the hassle of buying and storing any Bitcoins.
If this hypothetical example somehow relates to your current predicament, then you’re not alone and this is no coincidence. Countless new investors are looking for a solution to this problem and Bitcoin futures promise to solve it.
What Are CME Bitcoin Futures?
CME Group Inc (NASDAQ: CME) is the world’s largest exchange for trading derivatives. The exchange is regulated by the U.S. Commodities and Futures Trading Commission (CFTC), which has just given CME the green signal to introduce the first-of-their-kind Bitcoin futures.
These derivative financial products will allow investors to both hedge their Bitcoin positions or speculate on price movements.
By December 17, CME will integrate Bitcoin futures on its platform, which will open for trading for the first time on December 18.
Not only CME but some other major derivative exchanges will also begin offering BTC futures very soon. These include the Chicago Board Options Exchange (CBOE) and Cantor Fitzgerald.
In fact, it has just been confirmed that CBOE Bitcoin futures will begin trading a week earlier than CME’s. That is, by December 10. (Source: “CBOE to Begin Bitcoin Futures Trading December 10,” CoinDesk, December 4, 2017.)
The news has already gotten Bitcoin bugs, who are foreseeing an influx of new buyers once these floodgates open, quite excited.
The optimism is visibly obvious on the BTC price chart, where prices seem to be shooting for the moon.
Chart courtesy of TradingView.com
In the last two days, Bitcoin (BTC) prices have shot past $11,000 to just under $12,000. This was achieved within days after the cryptocurrency market went for a major correction and Bitcoin prices tumbled by as much as 20%.
Despite the selling pressure, frenzied buying tipped the scale in Bitcoin’s favor. The BTC to USD exchange rate has witnessed a remarkable reversal just as investors cross their fingers for the big day.
We have two more weeks until the CME launch date and I’m already foreseeing prices heading straight for the $13,000 mark.
How Will the Bitcoin Futures Work? Five Things You Need to Know
Bitcoin futures will work on the same lines as gold or foreign exchange futures do. However, since Bitcoin is a relatively new investment idea only beginning to gain traction, the CFTC is remaining somewhat strict in its regulatory guidelines for trading Bitcoin futures.
Here are a few things you need to know.
- CME Bitcoin futures will require traders to maintain an initial margin of 35%. Initial margin is the minimum amount of equity the trader must place with the exchange so the exchange may mitigate the risk of settlement defaults.
- The CME Bitcoin futures will trade under the symbol “XBT.”
- Each futures contract will consist of five bitcoins and the maximum spot position a trader could initiate in these futures is set at 1,000 contracts. This is to avoid market manipulation by individual traders.
- The minimum tick in Bitcoin prices that could result in a gain or loss for the trader is set at $5.00 for each bitcoin, or $25.00 for each contract of five bitcoins. This means that if prices move by less than $5.00, then the trader will see no gain or loss on his trade.
- Bitcoin futures will trade within a price limit of 20% above or below the last settlement price. Trading outside of this limit will not be permitted.
On a cursory look, the regulations seem stringent enough to control possible price manipulations by rogue traders. Yet, my readers deserve a fair warning that the derivatives market is rife with tremendous risk.
Bitcoin Price Forecast: Why Bitcoin Futures Could Send Prices into Another Rally
Nonetheless, the introduction of these unique cryptocurrency futures will open the floodgates for institutional money. More than individual investors, I’m seeing institutional investors pouring bucket-loads of money into Bitcoin futures.
This is the investor class that has so far watched Bitcoin’s meteoric rise from the sidelines. Many of them sit on Wall Street and have big money but little technical know-how.
The derivatives market will open the doors to this new breed of cryptocurrency traders and investors.
The bulls will be betting on Bitcoin’s upside to further push its prices up. But on the flip side, the futures market will also give a platform to the bears. As a reminder, Bitcoin’s incredible triple-digit price gain this year creates a classic opportunity for the shorts.
Regardless, the very fact that regulated exchanges are beginning to offer Bitcoin as a legitimate investment vehicle further grants it credibility in the eyes of average investors.
All in all, the introduction of these Bitcoin futures bears good news for the Bitcoin community. Regardless of how trades play out on the derivatives exchanges, Bitcoin prices could receive a boost from heightened investor interest.
I’m seeing Bitcoin prices make steady northward strides ahead of the launch.