Easy Money in Bitcoin Futures?

There’s no such thing as a free lunch, right?

Wrong.

Traders in the bitcoin futures market feel like they’re at a free all you can eat buffet. According to Bloomberg:

Cboe (Chicago Board Options Exchange) Global Markets Inc.’s new contracts were priced as much as 13 percent higher than bitcoin itself since trading began Sunday night.

Bitcoin futures trading higher than bitcoin

This means bitcoin futures were actually trading higher than bitcoin itself, shown below.

bitcoin futures

Source: Bloomberg

But why have bitcoin futures climbed higher than bitcoin?

Well, there could be a number of reasons.

Bitcoin price rise

Traders might think that the price of bitcoin will rise in the near future. Therefore, bitcoin future contracts that are ending in December this year or January next year would be more expensive, based on that assumption.

As you can see below, the further dated bitcoin futures are, the more expensive they are.

bitcoin futures price

Source: CBOE

Traders prefer futures to bitcoin

Another reason might be that traders prefer futures to virtual bitcoin. As Bloomberg explains:

‘…some investors might be willing to pay a premium for futures on a regulated market instead of going to the trouble of creating accounts at bitcoin exchanges, which have been repeatedly hacked with millions of dollars’ worth of tokens stolen.

“People feel a lot more comfortable in the futures on the Cboe than on an unregulated exchange,” said Kevin Kelly, managing partner of Benchmark Investments, which analyses futures markets to develop indexes.’

You can also see from the table above, bitcoin futures aren’t all that popular…right now. Volumes even for the contracts expiring in January next year aren’t that huge.

Yet, I imagine this will pick up in due course. CBOE launched bitcoin futures because there was obvious demand for the financial product. And shortly, the Chicago Mercantile Exchange (CME) will do the same.

With futures markets giving mainstream investors an ‘in’ to bitcoin, the next few months could be a turning point for the cryptocurrency.

Cheers,

Härje Ronngard,

Junior Analyst, Money Morning

PS: Want to find out more about the secret world of bitcoin? Click here.


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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