Many people were skeptical about the rising value of bitcoin, the digital cryptocurrency that allows people to conduct financial transactions without the need for a centralized institution like a bank. Skeptics felt like investing in it was a bit uncertain because of the lack of oversight, even though there is transparency built into every bitcoin transaction. But the recent news that bitcoin is going to be traded on the futures market is legitimizing the currency in the eyes of many people.
If you’re interested in getting involved with bitcoin investing but are an amateur investor, you might not have any idea just what the futures market entails. It is actually quite a simple concept, one that was once limited to physical commodities like agricultural products but can now also be used as a way to purchase practically any financial instrument for which there is significant demand. And since the demand for bitcoin has been surging practically at the moment, it makes sense that bitcoin futures can now be a part of your investment strategy.
It’s important to keep close track of bitcoin and crypto news because staying on top of the rapidly-changing scenario will keep you from getting left behind. If you’re still a bit at sea about the futures market and its connection to bitcoin investing, here are the basics.
Nailing in A Price
The benefits of futures contracts include the ability to protect against volatility and use your predictive powers to help you gain a financial edge. A futures contract essentially is an agreement by which one party agrees to buy a set amount of some product at a future time at a predetermined price. Once a future contract is signed, there is no backing out of it or any choice involved in the matter, which makes it a little different than an options contract, which allows the buyer the choice whether or not to follow through with a planned purchase.
What Can Transpire
Imagine that Investor A agrees to buy a certain amount of an asset from Investor B for $1,000 two months from now. If in two months that transpire, the value of that amount of that asset goes up to, say, $1,500, Investor A is going to essentially be walking away with a $500 value once they fulfill the contract and pay $1,000 to Investor B. By contrast, a drop-in value by the asset in that two months’ time to $500 would provide Investor B with a boon, since they would essentially be getting $1,000 for something now only worth $500.
What It Means for Bitcoin
What investors can do with the futures market for bitcoin is try and predict what the value will be down the road a bit. They can also assure themselves of getting it at a price that is beneficial to them, which can be a difficult thing to do considering the possibility of volatility. Savvy investors will be able to work futures contracts into their plans for bitcoin if they have the ability to time the market well.
It will be interesting to see how bitcoin’s entry onto the futures market transpires over the long haul. What is certain is that it’s good news for investors and fans of bitcoin, as it gives them another option to be involved with it.