Analysis of Bitcoin Futures Trading Patterns

The recent trading volume and price of Bitcoin seem to have far exceeded our expectations. What's more, the Chicago Mercantile Exchange, Chicago Board Options Exchange, and Tokyo Futures Exchange have all announced plans to launch Bitcoin futures contract trading in the near future. According to the current types of commodity futures contracts and financial futures contracts, Bitcoin futures contracts are not included, and their trading rules cannot be directly applied. In addition, since no competent authority has yet issued detailed rules for Bitcoin futures contracts, the attributes of its underlying assets and futures trading attributes can still give us a glimpse into this new futures trading model.

Trading Model

Since the underlying asset of Bitcoin futures is Bitcoin, as a special underlying asset, traders earn the difference by betting on the rise and fall of Bitcoin contracts. This type of futures is very different from the previous trading products of futures exchanges, mainly including:

First, futures pricing. According to the futures trading rules disclosed by the Chicago Mercantile Exchange, the pricing benchmark for Bitcoin futures contracts is its self-set Bitcoin Reference Rate ("BRR: Bitcoin Reference Rate"), which is based on Bitcoin trading data before 4 pm London time every day. The Chicago Mercantile Exchange will calculate a BRR based on data from major Bitcoin platforms. If the BRR of the above contract is higher than the BRR of the investor on the day of purchase when it expires, the investor will be charged the difference.

Second, futures income. According to the above BRR mechanism, Bitcoin futures products are actually settled in cash with Bitcoin prices as the underlying asset, and investors earn income through the price difference of Bitcoin.

Third, the margin mechanism. Like traditional futures contracts, Bitcoin futures contracts also apply a margin model. Since there is currently no unified standard for Bitcoin futures contract margins, the Bitcoin futures contract margins set by the exchange are generally between 10% and 20%.

Transaction Risk

Regarding the trading of Bitcoin and its derivatives, except for my country's relatively clear restrictive attitude, most governments have not yet issued corresponding regulatory policies. Despite this, the risks of its trading still need to be noted:

First, short selling mechanism. As a financial instrument for hedging risks, futures itself has a short selling mechanism and high leverage ratio, which will cause large fluctuations in futures prices without restrictions. Therefore, it is very likely that some investment funds that do not hold Bitcoin will buy and sell futures for speculative purposes and manipulate futures prices.

Second, regulatory risk. As the underlying asset of Bitcoin futures, it is difficult to separate Bitcoin transactions from money laundering, illegal financing and other activities. Therefore, various countries are still cautious about its transactions. Therefore, there are uncertainties in the regulation of Bitcoin and encrypted digital currencies. For example, the British regulatory authorities plan to include virtual currency trading platforms and custodial wallet providers in the relevant laws and regulations on anti-money laundering and anti-terrorist financing; members of the European Central Bank's Governing Council, the U.S. Treasury, Australia, South Korea and other relevant departments have begun to plan to include Bitcoin trading-related markets in the scope of regulation.

Third, investment risk. Due to the instability of the price and market of the underlying assets of Bitcoin futures, futures contracts will be greatly affected by them, and the risks of investors engaging in related transactions are also uncertain. Investors should participate in futures trading with caution after understanding the risks of encrypted digital currency transactions.

Although there are great controversies about Bitcoin and contract trading, the greatest value of digital assets is itself. Perhaps with the launch of Bitcoin futures trading, Bitcoin's price fluctuations may be greater, and as individual wealth concepts are constantly subverted, the charm of Bitcoin will be further blossomed!