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How Bitcoin Futures Will Affect Price



Bitcoin futures launch tomorrow (Dec. 10) on CBOE and on December 18th for CME Group. Many people speculate that the cause for Bitcoin’s run-up recently is over anticipation for these Bitcoin futures. In this video, I discuss the potential impact of futures on Bitcoin’s price.

First and foremost, I suspect liquidity will be lower than expected. The target group for Bitcoin futures are institutional investors and wealthy individuals, both of which tend to be more cautious. Given the warnings from FIA, Interactive Brokers and many others, these larger investors will likely be more reserved until the first expiration occurs and they have some experience watching the volatility in the futures themselves.

I did a brief explanation of cash-settled futures in the video, but I’d recommend you seek other sources to flesh out your understanding further. For example, I accidentally implied that the initial margin & mark-to-market process is done based off the spot price rather than the settlement price. The explanation I gave in the video is good enough for laymen, but if you want to trade these, then you’ll want to do some serious reading. I might do a video showing how to actually trade them in the future and get more technical.

The initial margin requirements are already high for Bitcoin and might increase depending on volatility. Certain brokers are already implementing higher than required initial margin requirements and are forbidding their clients from going short. Maintenance margin requirements will likely be in flux as well. Price limits might be tested more frequently than anticipated, leading to a choppy futures market which then screws with the underlying spot market. All of this is to say that many investors will wait before pumping significant amounts of capital into this nascent asset class.

Given this, I suspect this might be a “sell-the-news” type event and we might experience a correction following the CME Group futures launching if there are difficulties associated with their clearing. Note that CME Group has much higher contract volume than CBOE, so the CBOE futures launch will likely be more useful as an indicator of what to expect when CME launches.

I also forgot to note in the video that CME Group contracts are for 5 Bitcoin, which may have confused some of you when I said the initial margin requirements would be exceptionally high for CME Group options despite the fact they are going with lower initial margin requirements (35% vs. 44%) as a percentage of the contract value.

In the long-term, futures are excellent news for Bitcoin. They increase liquidity in a somewhat illiquid market, will decrease pricing inconsistencies (arbitrage), improve price discovery, and reduce volatility. The short-term will see volatility rise (likely) due to leverage, but this effect should reduce over the following months. Ideally, this opens the door for a Bitcoin ETF down the road as well. Eventually, more institutional investors will jump in as risk declines – but this will be a delayed effect (in my opinion) rather than an immediate one.

I would love to hear your thoughts. Let me know in the comments below and thank you for watching!

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21 comments

  1. jjj SS 12 January, 2018 at 12:23 Reply

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  2. Peter Meissnitzer 12 January, 2018 at 12:23 Reply

    One more problem is that Bcash is centralized. It was created and marketed by Roger Ver, the truth is that if Roger Ver dies, Bcash will go to nearly zero.

    If Vitalik dies, Ethereum will tank as well. Same for a lot of these teams. On the other hand, if a BITCOIN developer dies, BITCOIN continues all the same unscathed.

    BITCOIN is the most decentralized coin in that sense. And so I say GO….BITCOIN….GO . The KING of cryptocurrency.

  3. Bill Fallon 12 January, 2018 at 12:23 Reply

    In other words…..Had we left your crypto world alone the sky's the limits for your profitability. BUT…we just HAD to let the gangsters in so….now your gains are capped and the earnings you WOULD HAVE had now belong to the Wall Street Monopoly!
    Am I close?

  4. mick cv 12 January, 2018 at 12:23 Reply

    I guess I don't see the point of buying a future, at least if you want to go long. If you think bitcoin will go up then buy a bitcoin why buy a future? I guess this gives you the option to essentially short a bitcoin but that's about it.

  5. Manuela Schoeneck 12 January, 2018 at 12:23 Reply

    I've been in # Bitcoin for a while and can not tell who's right & who's wrong anymore. I suppose we're all wrong, as opposed to uniting together. Just worrying about missing out on a bitcoin you can actually trade BTC against the USD, I do that and I'm about $ 7200 every week with Rob Beyer strategy. He's advice and predictions to me was perfect. now i understand and see how it works with the help of Rob Beyer.

  6. batman56201 12 January, 2018 at 12:23 Reply

    my 13 year old son, who knows nothing about the equity markets, ask me about bitcoin today…he heard it was a good investment from his middle school friends…interesting.

  7. R L 12 January, 2018 at 12:23 Reply

    It has no future, it is a fraud based on garbage and stupid people, stupid people they can con will run out, and the expansion of bicoin will cease and return to the true useless garbage that it is, the whole time.

  8. reverend20piece 12 January, 2018 at 12:23 Reply

    Futures, to me, kinda sounds like a version of white collar gambling. You'd simply be betting on what Bitcoin's price will be, at a given point in the future. One guy wins, one guy loses. Got it.

  9. Freeda Birda 12 January, 2018 at 12:23 Reply

    I don't trust the banks one bit getting into this.. the institutional investors would turn it into a Ponzi scheme … pump and dump. Bitcoin should be in the hands of regular people… fucking greedy banks should go out of it!!!!

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