Bitcoin Futures Overview

Bitcoin futures trading is getting more press, more attention from traders, and seems to be moving full steam ahead. As cryptocurrency continues to become more ingrained in the financial landscape, it was inevitable that futures trading would emerge in the world of crypto. Although various cryptocurrency exchanges have offered the option to trade futures for quite some time, that action was unregulated and outside of the mainstream. Not much popularity or volume.

In December of 2017, things changed with Bitcoin futures trading. On December 10, the Chicago Board Options Exchange (CBOE) launched their Bitcoin futures trading. It passed, mostly, without fanfare. Trading volume was thin.

A week later, the Chicago Mercantile Exchange (CME) introduced their Bitcoins futures trading. A day after the introduction, on December 18, their futures trading began. Coincidentally, Bitcoin hit its high of $19,783 that same day.

Since then, the Bitcoin price began a downward trend and is now trading at less than half its pre-futures peak.

The over-riding philosophy of cryptocurrency and associated technology has been of decentralization. Along with that, privacy has also been paramount. It was all a frontier free from interference. No governmental regulations. Independence for all.

So, the question that has entered the conversation is has legitimizing of Bitcoin trading with the introduction of mainstream futures markets chilled all the excitement. Or has the tumble of Bitcoin prices merely been a market correction that was bound to happen?

Both of those points can be argued. Perhaps there is truth in both arguments.

According to the Fed, a price run-up and fall is normal trading behavior when a futures market for an asset is introduced. Their point of view seems to be that Bitcoin is nothing special or unusual. It is simply another tradable financial asset. Being another financial asset that can be traded, it has and will continue to behave like one. Nothing special to see here, just move along, it is business as usual.

From another perspective, the futures market dumped cold water on the whole scene. Without a futures market, some argue, how could anyone predict a price drop? There was no basis for anyone to bet their money on a decline in Bitcoin. Everyone was euphoric. The price kept rising. Money was being made and there was no ceiling. Optimism ruled and fueled the run-up.

Not everyone was run-up drunk. There were pessimists. Pessimists, by their nature, believe bad is right around the corner. They believed a price collapse was coming. They believed that there was no way to avoid it. They just couldn’t prove it.

The belief is that with the successful introduction of the futures market, these pessimists were now able to enter the market. They were now able to be active in Bitcoin trading. The bet on Bitcoin dropping. What happened? Bitcoin dropped.

What cannot be known for sure is what fueled the pessimism. Was the pessimism fueled by an increase in the mainstreaming of Bitcoin? Did this mainstreaming mean that Bitcoin was nothing special? Since it was nothing special, it will behave like every other financial product in the marketplace that we can trade.

Taking a look at things in the here and now, it appears that the Fed and the pessimists were right.

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