Is it possible to buy bitcoin futures?

How do Bitcoin futures work?

The Bitcoin has arrived on Wall Street. At least the Cboe Global Markets (Chicago Board Options Exchange) has already started trading futures on the Bitcoin. A little later, the Chicago Mercantile Exchange (CME) also follows the example and will also offer Bitcoin futures. The same applies to the US technology exchange Nasdaq, which is expected to enable Bitcoin futures trading in the second quarter of 2018.

But what will change now for Bitcoin investors and those who want to become one? For the first time it is possible to bet not only on a rising but also on a falling Bitcoin rate with Bitcoin Futures. In technical jargon, this is also called "shorting".

This could be of interest to investors who are skeptical of the world's largest cryptocurrency, because Bitcoin temporarily increased by 1,000% in 2017.

On the other hand, Bitcoin futures make it possible to bring the digital currency closer to a wider audience, because with the help of futures, institutional investors no longer have to invest directly in Bitcoin. But first, let's take a closer look at what Bitcoin futures actually are.

What are Bitcoin Futures?

First and foremost, futures are forward contracts that fall into the derivatives asset class. In simple terms, Bitcoin futures allow bets on the future. For example, what price the Bitcoin will have in 1, 2 or 3 months.

The futures contract provides for a base value (in this case Bitcoin) and a certain amount that must be delivered at a certain time in the future (date) at a fixed price. A forward deal is a binding contract that must be fulfilled.

This means: For example, the seller of a Bitcoin future sells a corresponding futures contract in December at a price of US $ 18,500, which matures on January 17, 2018. The seller of the Bitcoin futures hedge against falling prices.

The buyer of the Bitcoin Futures, on the other hand, expects higher prices and sees himself at an advantage if the Bitcoin is at 20,000 US dollars at the time of delivery (January 17, 2018), for example. The future buyer then makes a de facto profit of 1,500 US dollars because he has lower acquisition costs.

The seller of the Bitcoin Future benefits if the Bitcoin is below the mark of US $ 18,500 at the time of delivery on January 17, 2018, because he has already sold the Bitcoin at a higher price.

The Bitcoin Future (ticker: XBT) offered by the Cboe has a special feature: The future seller does not actually have to deliver the Bitcoin, only the price difference to the market price. This is called cash settlement. This means: traders can speculate on Bitcoin without actually having to touch the digital currency.

Who are Bitcoin Futures for?

Bitcoin futures are not only of interest to speculators, they could also be of interest to Bitcoin miners in particular. The so-called miners earn by calculating bitcoins and validating transactions. Bitcoin miners have ongoing electricity costs, but do not know where the Bitcoin price will be in the next month or the month after that.

In this case, Bitcoin miners can practically sell the calculated Bitcoins in advance via a Bitcoin Future at a fixed price and thus hedge against a falling Bitcoin price.

Bitcoin futures and short sellers

Bitcoin futures could also be interesting for so-called short sellers (short sellers), because this investment clientele can now for the first time ever bet on a falling Bitcoin price. The short seller sells a Bitcoin Future in the hope of being able to buy back the Bitcoin later at a lower price - the difference is the short seller's profit.

However, this bet is associated with a very high level of risk. On the one hand, there is a theoretically infinite price risk for the short seller if the Bitcoin price continues to rise. On the other hand, the seller of the Bitcoin futures must deposit a so-called margin (security).

In the case of the Bitcoin futures of the Cboe, this is particularly high. Because in order to be able to place a bet against the Bitcoin, the short seller must initially deposit a safety margin of 44% of the settlement price. As a rule, safety margins of less than 10% are required for futures. This means: If the Bitcoin continues to rise, the short seller has to inject more money (margin call). If this does not happen, the futures position is automatically sold.

Conclusion: Bitcoin futures are not really suitable for private investors

Bitcoin futures are interesting for Bitcoin miners and payment processors who want to hedge against a falling Bitcoin price. This is legitimate, as the digital currency is subject to high exchange rate fluctuations in some cases. Bitcoin futures are less suitable for private investors, the investor has a high chance of winning, but also a theoretically unlimited price risk if the bet does not work out.

Investors should consider Bitcoin - if at all - more as a store of value and an admixture of securities. In addition, Vontobel now offers a Bitcoin certificate with which investors can participate in the price development of the Bitcoin without having to buy the Bitcoin directly. Nevertheless, investors should remain cautious, because cryptocurrencies fluctuate very strongly, high profits are just as much a part of the agenda as high losses.

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