How are Bitcoin Futures going to Change the Dynamics of The Crypto Space

The world of Bitcoin never stops changing and adapting.

It is an unavoidable fact that two main investment areas might meet up in the future. Cryptocurrency enthusiasts and investor parties are searching for ETFs that help them grow their popularity. For such ETF, Bitcoin is a well-suited opportunity for this chance.

The Bitcoin futures ETF is an exchange-traded fund that provides investment knowledge and exposure to people about the Bitcoin prices without the need to go and buy cryptocurrency directly. Investors are allowed to sell and purchase ETF shares similar to stocks.

ETF shares can be bought and sold at any time in the crypto market.

This article will teach us the dynamic changes in the crypto space with the assistance of Bitcoin futures ETF.

What are Bitcoin Futures?

In Bitcoin futures, two parties sign a contractual agreement to buy or sell Bitcoin at an already defined price and date that would be transacted on a commodities exchange. We use the term of derivative while explaining any contract that traces fundamental asset prices.

In short, the buyers or sellers agree to buy or sell the Bitcoin at a specific date without caring about the variable changes in the price of Bitcoin that might occur.

The contractors fulfill their necessities when the particular date arrives, known as the contract settlement date.

What is Bitcoin Futures ETF?

An ETF is used to know the price fluctuation of a fundamental asset.

This is helpful to gain profit from asset trends without physically owning the Bitcoin. In Bitcoin ETF, Bitcoin are tracked by the investment instrument.

ETF’s price maintains a high correlation with the price movement of a primary asset. In Bitcoin futures ETF, the price is fixed of a Bitcoin ETF to a stock of Bitcoin. The companies need to back the value of their Bitcoin ETF. Therefore, companies constantly ensure the sufficiency of Bitcoin in their possession.

Bitcoin futures ETF imitates the price of Bitcoin rather than describing the market price of Bitcoin. Derivatives of Bitcoin (future contracts) support the ETFs.

Blockchain Certification

How does Bitcoin Futures ETF work?

It is the job of an ETF to track the performance of a specific group of assets. It also allows the investors to expand their investments without buying the tangible assets.

As it is the only focus of people to know about gains and losses, ETF helps them buy and sell individual assets.

A Bitcoin ETF mimics the price of the most popular digital currency of the world, i.e., Bitcoin cryptocurrency.

You don’t have to go deeply into the trading concept of Bitcoin for this purpose.

Moreover, there is no requirement of dealing with complex security and storage procedures as the ETF does not directly invest itself in the Bitcoin.

Bitcoin Future and its Changing Dynamics

Bitcoin relies on the peer-to-peer system, unlike banks and credit card companies. Bitcoin miners use computing resources to verify Bitcoin transactions to maintain the blockchain.

The total number of Bitcoin to be mined is almost 21 million.

While we discuss the dynamics of currency like Bitcoin, let’s first differentiate the transactional demand which arises from using transactions for Bitcoin and speculative demand, which rises when people buy Bitcoin, thinking that their value might increase.

Speculative demand is also referred to as a bet on the price of a basic asset. For most assets, investors have artificial ways to increase and decrease the value of assets with the help of financial instruments called financial derivatives.

In December 2017, there was no resource for Bitcoin derivatives, which means people couldn’t bet on the Bitcoin price decline. When you bet on the decline of a Bitcoin, it means you are selling the asset before you buy it.

Hedera Hashgraph vs Ethereum

However, betting on the increase in Bitcoin price was very easy as the person only needed to buy it for positive fluctuation in Bitcoin price. The optimistic and dynamic change in the history of Bitcoin was only possible due to investors who were willing to buy Bitcoin for levelling up its price.

On December 17, the optimists were right as they pulled up the Bitcoin price, motivating other people to invest in Bitcoin.

As an introduction of Bitcoin futures, a pessimist who bet on the decline of Bitcoin will buy and sell agreements having a lower price in the future as compared to the original price. Their goal is to lend a promise to lower the Bitcoin price than the current price and hope to buy the Bitcoin at a lower price to gain profit.

When more offers indicate future Bitcoin deliveries at a lower price, the order flow also puts downward pressure on the spot price. So, it is good for all those investors in the market willing to buy Bitcoin for either speculative or transactional reasons.

So, the new investment opportunity will affect the demand in the spot Bitcoin market, which will result in a price drop. The sudden decline in Bitcoin price might be due to pessimists’ lack of attention and willingness.

Does Bitcoin have a Fundamental Value?

If you ask about the fundamental value of Bitcoin and where does it stand, the answer to this would be difficult. We cannot outline the guesses on Bitcoin prices, but we can provide those factors that might affect the fundamental price of Bitcoin.

The supply of Bitcoin is directly proportional to the number of Bitcoin in circulation and the additional volume that will be mined.

The Bitcoin mining decision depends on the mining cost and benefits. There is no actual asset that supports the Bitcoin value; therefore, the fundamental price of Bitcoin depends on the transactional demand compared to supply.

If the transactional demand increases, the price of Bitcoin will grow.

Moreover, if financial institutions that deal in trading accept Bitcoin as means of payment and direct investment, its demand may increase further.

Conclusion

Bitcoin Futures ETF is another controlled financial product that enables people to participate in the Bitcoin market without paying for it. We have discussed the work process of increasing and declining Bitcoin value accompanied by the changing dynamics in the Bitcoin market.


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