The last couple of years has been extremely polarizing for the crypto world. From the highs of 2020-21 to the lows of 2022 – there is zero doubt that the cryptocurrency market can be a bit overwhelming for beginners to invest into.
That being said – there are tools in the crypto space, namely crypto derivatives like Bitcoin futures that allows you to stay invested in the market, participate in the price movements, and hedge against the extreme levels of volatility that the crypto market is infamously known for.
What are Bitcoin futures though? And why should you consider purchasing them?
If these are the questions popping up in your mind, stay tuned to find out more.
What are Bitcoin Futures?
Just like futures in the traditional financial market – Bitcoin futures is a contract where the holder has the obligation to buy or sell Bitcoin at a predetermined price, upon expiry at a specific time.
Regardless of what the market price is, at the date of expiry – the buyer is obligated to sell Bitcoin at the agreed-upon price, and so is the seller.
Now that we have that out of the way, let’s understand why it’s beneficial for you to invest in Bitcoin Futures, and what different use cases it can serve in the real world.
Advantages of Investing In Bitcoin Futures
The many advantages of investing in Bitcoin futures include:
- Bitcoin Futures are Highly Leveraged
In order for you to trade in futures, you’ll have to put up a margin – a small percentage of the overall contract amount, typically in the region of 10%. This acts as collateral that is maintained by crypto exchanges like Delta, should the market move in the way that you didn’t intend for it to move. If these losses erode the margin away and bring it down beyond a certain level, you will have to put up more money to stay exposed to your position.
This essentially means that you can quite literally multiply your profits due to leverage. If the margin required is 10%, you’re exposed to 10 times the value of Bitcoin than the money you’ve invested in – multiplying your profits by 10% as well.
- Speculator’s Best Friend
The Bitcoin futures market is extremely liquid, and together with the multiplicated exposure that you stand to gain – the Bitcoin futures Market is often considered to be a speculator’s best friend. The prices in the futures market also tend to change and react quicker than in the spot market.
Be advised though, just as futures have the potential to earn you literally unlimited money, if executed poorly, they can also end up losing you exponential amounts of money in the short run. This is where Bitcoin futures strategies come into play – we’ve gone through several such strategies that will help you limit your losses while keeping you exposed for profits in the long run.
- Excellent for Hedging
The Bitcoin futures market can help you hedge against the potential losses you face in your underlying position. This helps you protect yourself against any unforeseen price moments in the near future.
One of the biggest, and soon-to-be more common ways of using a Bitcoin futures contract is going to be extremely interesting. Once businesses start adopting Bitcoin more – the following situation is definitely bound to happen.
Say a company is agreeing to sell an industrial machine for 1 bitcoin. However, this payment of 1 bitcoin will only be received 1 month from now. If the company is afraid of Bitcoin losing value by the time the payment is received, it can buy Bitcoin futures at the current market price, enabling them to eliminate the potential for any and all losses.
Similarly, the seller may anticipate a rise in prices over this period and can sell Bitcoin futures at the current market price, in order to prevent himself from paying an exorbitant amount.
So Bitcoin futures trading help you to achieve both of these scenarios.
- Paper Investments
Though you have an obligation to buy/sell Bitcoin at the expiry of the futures contract, you do not actually need to buy/sell Bitcoin! Sounds confusing? That’s because a vast majority of futures contracts are USDT settled. Not only are you exposed to 10 times your investment in Bitcoin with the same amount of money, but you also don’t need to have access to the underlying asset to take a position, thus practically eliminating the barrier of entry.
- Shorting, Shorting, and Shorting.
Short selling Bitcoin may seem like a daunting task when you attempt to do it in a stock market – you’ll have to borrow the Bitcoin from someone, sell it immediately, wait for the price to go down, purchase it back at a lower price, and repay the Bitcoin to whomever you’ve borrowed it from.
Or, you can achieve all this, by simply selling a Bitcoin futures contract.
The simplicity speaks for itself.
Bitcoin futures is an extremely lucrative tool for investors of all kinds. It literally doesn’t matter if you
- Have a high risk appetite? You can speculate with Bitcoin futures.
- Are extremely safe, and want to protect your investments? You can hedge against the risk with Bitcoin futures.
- Are a naysayer, and don’t believe in Bitcoin? You can bet against Bitcoin’s worth by using Bitcoin futures.
Hope this blog answers all your questions about the advantages of trading in Bitcoin futures. Should you have any queries, hit us up on our socials, and our experts, along with the members of our community are sure to help out!