The CBOE announced last month that it would finally be launching futures trading for cryptocurrencies.
The initiative makes the CBOE the first options exchange to provide investors with a new way to invest on, or wager against, the popular new market.
According to Ed Tilly, the Chairman and CEO of the CBOE Global Markets
Given the unprecedented interest in Bitcoin, it‘s vital we provide clients the trading tools to help them express their views and hedge their exposure
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Last Year's “Futures Rally”
Cryptocurrency prices skyrocketed and broke record levels last year due to various economic reasons, one of which was the promise of the CBOE to offer investors the option to trade cryptocurrencies.
Bitcoin's Price Index last year shows how the cryptocurrency's prices jumped from below $1,000 at January 2017 to almost $20,000 at the final quarter of last year.
Bitcoin futures in 2018 will give investors exposure to the trends of cryptocurrencies. Analysts believe that it will also set the stage for a Bitcoin ETF in the U.S., and, potentially, the rest of the world.
New Bitoin Instruments in 2018
The Cantor Exchange, a U.S.-based binary options exchange, also self-certified a new contract for Bitcoin's binary options along with CBOE's announcement to offer investors futures trading.
Futures trading is an agreement between two parties — the buyer and the seller — to exchange an asset at a future date. Futures were originally created in order for farmers to hedge against the changes in prices of their crops between planting and harvest time.
With cryptocurrency futures, the concept for the market will remain the same — hedging cryptocurrencies against the volatility of future prices.
Another way to trade on the cryptocurrency market will be through binary options. This is a platform where traders make money by making correct predictions of the price movements of indices, commodities, currencies, and many other assets. Nadex's binary options page states that the trade provides a limited-risk contract based on a simple yes or no question.
Binary options also extend to predicting the rise and fall of cryptocurrencies. If an investor correctly predicts that the price of Bitcoin will rise at 3 PM tomorrow, that person will earn a profit. If the investor is wrong, the trading capital will be lost.
Details of Contracts
CBOE's Bitcoin futures will be using the ticker symbol of XBT. Trades will be settled by cash against the auction price of Gemini Trust — the digital currency exchange that was built by the Winklevoss twins.
The Bitcoin futures that will be offered by CME will come at a later time. However, it was confirmed that the trades will be settled against 4 exchanges namely GDAX, itBit, Bitstamp, and Kraken. CME’s announcement of Bitcoin futures followed that of CBOE's, which launched Bitcoin futures contracts on December 10, 2017.
Next Step to Mass Adoption
Analysts say that the launching of Bitcoin futures in 2018 is an important step towards the acceptance and legitimization of cryptocurrencies. Although Bitcoin futures have been available at the Bitmex Exchange for some time, these futures contracts will allow institutional investors to enter the market.
Today, Bitcoin is being accepted by thousands of merchants around the world, and some countries are now writing laws in order to better regulate the cryptocurrency.
If 2017 was the rise of cryptocurrency, 2018 could see the currency stabilize and become globally recognized as a sustainable currency.
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