ABC Crypto, Lesson 20: Investing in cryptocurrencies with future contracts

We started the final stretch of our ABC Crypto, with the foundation of the crypto world already laid. So that we can devote to the issues that are of the guide CriptoTendencia, try a more specific subject. How to invest in cryptocurrencies as Bitcoin, and not die in the attempt? For which, we will begin analyzing future contracts, one of the main financial instruments at your disposal, to enter the crypto market.

What are future contracts?

Within the wide range of existing options to enter the crypto market, future contracts occupy a special place. Be much bigger the market for these derivative financial products, than that of the direct purchase of criptoactivos in the exchanges existing. To understand the why of this situation in the first place, we should know that consist of future contracts. These are derivative financial instruments, i.e., instruments whose purchase does not involve the direct acquisition of the asset from which they depend. That is to say, the purchase of a future contract on Bitcoin, does not imply in any case the direct purchase of a BTC. Thus, we can define the futures contracts as a contract between two parties which agree to exchange an asset, at a fixed price on a future date agreed upon in advance. Thus, a future contract may obligate one of the parties to the sale to the other 100 Bitcoins to $ 30,000 the Bitcoin at the beginning of 2022. In real life, you usually never come to these transactions, but the futures contracts serve as a bet around the price of the asset on which they are based. Continuing with our previous example, if the price of Bitcoin is placed on top of the $ 30,000, the part owner of the purchase contract will earn money. So the value of his future contract will increase. On the contrary, if the value of the Bitcoin low of $ 30,000, the part owner of the contract will lose, and so will also the price of the contract. At the end of the day, when the time comes for the execution of the contract, that is to say, the beginning of 2022. None of the parties will receive Bitcoins in exchange for your contract. But that will receive the value of his future contract determined by the variations of the market, as you just explain it. So it is possible to “bet” on the price of Bitcoin without ever using any currency other than the u.s. dollar. This feature of futures contracts allows them to be more scalable than the Bitcoins, and to reach a greater public. Because, even if it only exists a limited amount of Bitcoins, the fact that the parties of a future contract never get to handle BTC, allows you to create as many futures contracts as they want, and without that it corresponds with the amount of Bitcoins in circulation. Also, do not use the criptomoneda directly in any of the transactions. Opens up this market to investors who do not wish to carry out trading classic using criptoactivos. Thus, the alternative to obtain payment for your contract in the currency of your choice, if you decide not to sell it in the market to another person before the expiration date. Finally, the last great advantage of futures contracts is that they are the main instrument that allows you to bet on a fall in the price of an asset. Therefore, if you have a contract for the sale of Bitcoins for $ 10,000, and the price of Bitcoin falls below 5,000, this means that you would be earning money. And therefore your contract increased value.

What exchanges use to acquire contracts in the future?

This explanation about the future contracts of Bitcoin or any criptomoneda, it may seem complicated at first glance. But what is certain is that there are platforms dedicated to the sale and purchase of these financial instruments. That make its acquisition a much simpler process than it may seem. Limiting the information that you need to know about it. The futures contracts have a date of execution that will define its price in the market, and the money that you will receive when the same reaches. Therefore, it is crucial to choose an exchange that fits our needs. And we offer the type of contracts in the future that we require. To exist today, in the market of Bitcoins three main platforms. The CME Group, Binance Futures and contracts Bakkt marketed through ICE. Futures contracts on Bitcoin of CME Group ,are the pioneers in this type of financial instruments within the crypto market. Having been launched in the year 2017, the same allow operations with future contracts of Bitcoin. Using the same only us dollars. So there would be no need to purchase Bitcoins to make transactions on the platform. The second platform is Binance Futures, launched in the year 2019. This also allows for the purchase-sale of futures contracts on Bitcoin. With the particularity to open the doors to the transactions of these instruments using virtual currencies as a Tether. Finally, the last platform from which we speak, though not the last that exists in the crypto world, is ICE. Which serves as the basis for the marketing of futures contracts on physical on Bitcoin of Bakkt. Which accounted for the whole of an innovation after its launch last year. Therefore, the physical contracts of Bakkt, unlike the CME. Allow the execution of the future contract on the due date is made in Bitcoins. Which opens the doors to institutional investors as they prefer. Be able to enter the crypto market directly through its investments in derivative instruments such as these. To exist therefore, a wide range of futures contracts available to investors, according to their preferences. The following two tabs change content below. Student of International Studies, interested in issues of economy and international politics. Passionate about the progress of the Fourth Industrial Revolution in general and the cryptocurrencies in particular.

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