Life after bitcoin futures expiry: what should the cryptocurrency community prepare for?
On December 11, the cryptocurrency exchange CBOE started the first bitcoin futures trading. Just a week later, the CME Group equalled their colleagues’ record. Now, we have first contracts concluded with their life expiring in January. It is January 17th for CBOE and January 26th for the CME Group.
Futures allow investors to purchase and sell assets (bitcoins in this case) on a certain date at the price specified as at the contract conclusion. However, it is not about real bitcoins. For all intents and purposes, an investor acquires a contract that tracks the prime cost of an asset and tries to predict how the price will change at the time the contract is executed.
This new development makes you think about the future of cryptocurrencies. Bitcoin futures have not existed before and it is therefore unclear what to expect from them. The bitcoin itself reacted quite naturally to this innovation by falling from the record-breaking 20 thousand to 16,880.
What happens next?
There may be several scenarios here. First one would require bearing the market. As we all know, most bitcoins are concentrated in the pockets of a small group of people — the big league. This big league banks on the futures price to fall down the closer it approaches the expiry and, once it does expire, they are likely to raise the price in January before the futures contract expires in a matter of days. This way, they can maximise their bitcoins purchase to sell them later for a better price in a couple of hours before the futures expires.
Or perhaps the big league anticipates the futures price to increase by the expiry date. This way, they will benefit from purchasing more bitcoins to raise their price once conditions of the first futures are met. This scenario does not seem to be plausible as it can kick the cryptocurrency price up and deprive investors of the opportunity to buy it cheaper. Experienced players usually prefer to avoid risks that big. There is also a possibility that the big league will use both tactics. On January 17, when the first CBOE futures contract is executed, they will trigger the bitcoin increase, while on January 26 (expiry date of the CME Group futures) they start bearing the market.