Bitcoin Futures Market 101

Everything you need to know.

Most people who buy Bitcoin do so on the spot market. This means that when you buy Bitcoin, you are forced to pay the current market price. As of this writing, the price of Bitcoin is $47K. Buying 1 BTC on the spot market is paying $47K directly and taking possession of your BTC.

This way of working is not suitable for everyone. Now imagine that you can lock in that $47K price and only pay it in several months. Thus, even when the price of Bitcoin is $100K, the counterparty will be obliged to deliver the Bitcoin purchased at $47K to you.

There is a name for how this works: it's called a futures contract. A futures contract is an agreement between two traders that obliges the trader to buy or sell an asset at a specific time, quantity, and price.

So you could make an agreement on January 3, 2022, to buy Bitcoin at $47K on June 2022. You could also be on the other side of the deal by agreeing to sell a Bitcoin at a pre-determined price. If you are a buyer, your interest is logically in seeing the price of Bitcoin rise during this time. Thus, you could pay less for your BTC than the spot market price when the futures contract expires.

If you are a seller, your interest is in the price of Bitcoin falling so that you can sell it for more than the spot market price at expiration.

The CME (Chicago Mercantile Exchange) Bitcoin futures contracts began trading on December 18, 2017. In addition to the standard Bitcoin contracts, the CME offers Micro Bitcoin futures, which are 1/10th the size of a standard Bitcoin contract, and options on Bitcoin futures.

Bitcoin futures have multiple interests for investors