Posted By: Ilan Levy-Mayer Vice President, Cannon Trading Futures Blog
Cryptocurrency, most notably Bitcoin, has become a new frontier for investors since its inception in the wake of the 2008 financial crisis. Since then, bitcoin has been used for buying, trading, and selling in the digital space. Cryptocurrency is a digital or virtual form of currency that is secured by cryptography, making it almost impossible to be counterfeited or double-spent. Bitcoin is also kept record of through Blockchain, its own uniquely designed record-keeping technology. Blockchain is a distributed ledger that allows Bitcoin to be traded safely across a disparate network of computers. For this reason, cryptocurrencies like Bitcoin are decentralized and exist outside of the control or authority of any government or governing agency. These features are very attractive to investors for their dependability and their ease of transfer. High volatility and hedging opportunities included, Bitcoin futures were launched in December 2017. How can you determine if Bitcoin futures are right for you? Get started exploring your Bitcoin futures investing options with Cannon Trading.
Navigating the Volatility of Bitcoin
As a budding asset class, Bitcoin is still unpredictable. Like most other asset classes, Bitcoin’s volatility is measured by the volatility index (VIX) in traditional markets. This index originated from the Chicago Board of Options Exchange or CBOE and has become the most widely used and trusted proxy for market volatility. This proxy, while robust, is still unable to determine a generally accepted index and will still need more time to do so. What we do know is that Bitcoin is currently a volatile option, and has fluctuated in price significantly within its first decade of existence.
As a new resource, investors are more hesitant to invest. It is still unclear whether Bitcoin will ever be regulated by national governments. It is due to this lack of regulation that Bitcoin has also received some bad press for being used for illegal activity. Naturally, the ebb and flow of good and bad news has hurt Bitcoin’s adoption rate, causing its value to fluctuate significantly.
Why Invest In Bitcoin
While still uncertain, Bitcoin and cryptocurrency are becoming another asset class/ trading vehicle for futures traders. Bitcoin’s volatility allows for stark fluctuations and price swings that create trading opportunities and risks for risk takers. These are the price swings and opportunities are characteristics that lend themselves to futures trading. Investors will be able to hedge their existing assets and/or speculate on fluctuating value in order to make a profit. As a purely online asset, bitcoin futures will bring a level of transparency and liquidity to the futures market.
When trading bitcoin futures, you can assume either a long or short strategy or in other words, speculate on whether the price of your asset will go up or down and acting accordingly. A long strategy would attempt to predict a rise in Bitcoin’s value. If the price of bitcoin is currently 4,000 USD and you predict it will rise to 5,000 USD later this year, you will speculate on that by going long a bitcoin futures contract and if you are correct, you will gain profit, if you are wrong, your account will suffer a loss. Conversely, a short strategy attempts to predict a fall in bitcoins value. In this strategy, you will want to sell your Bitcoin futures for a profit. If in the same example, the price of Bitcoin is currently 4,000 USD and you expect it to fall to 3,000 USD later in the year, you will go short, or sell the contract ( even though you don’t own it) in an attempt to gain from this speculation.
Partner with a Broker
Bitcoin is a new contact for futures traders. In this ever-evolving landscape, you will need to partner with a professional to help guide you in your futures trading decisions. After doing your research to determine if bitcoin futures are right for you, we recommend partnering with one of our professional brokers to build out your strategy. Our team will help you to set clearly defined goals and parameters to help you navigate the market and have a clear picture of both risks and opportunities. Count on our team to guide you through setting up your futures account and be there every step of the way to navigate the trading platform, futures trading, reset your strategy in case of a misstep, and help you make the most out of your bitcoin futures trading.
Disclaimer – Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Bitcoin futures, in particular, may experience significant price volatility. All futures contracts, including bitcoin futures, utilize significant leverage. With leverage, a small price move of the contract against your position may result in a large loss, potentially including loss of more than your entire account balance.