Four Problems With Bitcoin Futures (2024)

FAQs

What are the risks of Bitcoin futures? ›

Bitcoin and bitcoin futures can be highly volatile. Leverage created by futures contracts can significantly amplify both gains and losses. Futures contracts are standardized, time-limited contracts that convey the right to buy or sell the underlying asset at some point in the future.

Financial Risks:

High Leverage: Crypto futures often involve leverage, allowing you to control a prominent position with relatively little capital. This magnifies gains and losses, potentially leading to significant financial loss, especially if the market moves sharply against your position.

The Risks of Trading Futures

Market Risk: The most obvious risk with futures trading is that prices can be highly volatile, and changes are can be swift, adverse, and devastating. 11 This is because the market risk is magnified by leverage, when there's already enough to worry about when supply and demand shift.

The Commodity Futures Trading Commission (CTFC) regulates the overall futures market, and the agency considers Bitcoin a commodity, so Bitcoin futures are commodity futures. Bitcoin futures contracts trade on the Chicago Mercantile Exchange (CME), which introduces new monthly contracts for cash settlement.

Cryptocurrency investors should take a price prediction with a good degree of skepticism. One of the major problems with many price predictions about Bitcoin is that they lack sufficient analytical support to back up their claims.

Security futures involve a high degree of risk and are not suitable for all investors. The possibility exists that your customers holding security futures could lose a substantial amount of money in a very short period of time because security futures are highly leveraged.

The most prevalent benefits include simple pricing, high liquidity, and risk hedging. The primary disadvantages are having no influence over future events, price swings, and the possibility of asset price declines as the expiration date approaches.

Bitcoins Are Not Widely Accepted

Bitcoins are still only accepted by a very small group of online merchants. This makes it unfeasible to completely rely on Bitcoins as a currency. There is also a possibility that governments might force merchants to not use Bitcoins to ensure that users' transactions can be tracked.

Market volatility is crucial in causing losses for futures and options traders. High volatility can lead to sudden and unpredictable price movements, increasing the risk of losses for traders who are not adequately prepared or have not implemented appropriate risk management strategies.

Can you go into debt with futures? ›

Unlike more traditional financial products, a futures contract can lead you into debt. Traditional financial investments, such as stocks and bonds, have front end risks. This means that you establish your maximum exposure when buying the investment.

Forwards have more counterparty risk than futures.

Bitcoin is a large portion of the growing digital asset market. BTC futures provide investors with transparency, price discovery and risk management capabilities. The contract will also allow individual market participants to access the bitcoin market as well as hedge any direct exposure to bitcoin pricing.

How are Bitcoin Friday futures settled? Daily settlement for BFF contracts are based on their respective volume-weighted average price (VWAP) of CME Globex trades between 2:59:00 p.m. and 3:00:00 p.m. Central time (CT) rounded to the nearest tradable tick.

Regulated Exchanges

The margin requirement for Bitcoin futures trading at CME is 50% of the contract amount, meaning you must deposit $25,000 in your margin account.

While the future of Bitcoin is unknown, retail investors must be very cautious about every move of Bitcoin, as it has witnessed tumultuous before. Moreover, India's stance on cryptocurrencies continues to be firm, with the government bringing all crypto-related transactions under the ambit of the Money Laundering Act.

There are two main types: Perpetual Futures Contracts: These do not have an expiry date, allowing traders to hold positions indefinitely. They are typically subject to periodic funding rates to keep the contract price close to the spot price. Fixed-Date Futures Contracts: These have a specific expiration date and time.

Safer Than Owning Crypto: Bitcoin futures contracts are relatively safer for dabbling in Bitcoin without getting burnt because futures contracts have positions and price limits that enable you to curtail your risk exposure to the asset class.

Cryptocurrency futures are leveraged products, meaning you could lose more than you initially invested, quickly and with relatively small price movements in the underlying futures product.