Four Years Later, What Bitcoin Means to Retail Traders


AT A GLANCE

CME Group is celebrating the four-year anniversary of its Bitcoin futures contract (BTC), a product that has helped to revolutionize cryptocurrency trading since 2017. Before the introduction of this contract, traders could only trade actual bitcoin. But that has quickly changed, as average daily volume in CME Bitcoin futures soared to over 24,000 contracts during the third quarter of this year.

CME Bitcoin futures allow investors and traders to gain exposure to bitcoin without the need to actually possess the cryptocurrency. These contracts allow a trader to speculate on the upcoming price of the asset, and because these contracts also have different expirations, they offer participants added flexibility. CME Bitcoin futures are cash-settled based on the CME CF Bitcoin Reference Rate. The popularity of bitcoin and the entire cryptocurrency market among both institutional and retail investors has exploded, and the thirst for alternative methods to trade and invest in this asset class has helped drive the development of this product. Many brokers – including Interactive Brokers, eTrade and TD Ameritrade –  do not allow direct investments in cryptocurrencies, and therefore, the availability of CME Bitcoin futures has opened the door for retail futures traders to enter the space.

CME Bitcoin futures offer the following features, which allow participants to act on an opinion of movement ahead of major economic reports, Fed decisions, and other market events:

  • Ability to hedge price risk. Investors who are holding digital assets can mitigate the risk of a falling price by simultaneously taking a “short” future position.
  • Speculate on market direction. BTC futures trading affords the opportunity for real speculation to occur.
  • Stabilize price fluctuations. In addition to speculation, BTC futures offer stability as long-term views of the markets play a more significant role. Futures help bitcoin holders to smooth exposure.

Since 2016, there have been numerous major events where the ability to participate in the futures markets could offer major benefits.

June 2016: After a gain of almost 50% during the first two weeks of the month, bitcoin quickly drops almost 20% as a poll shows that U.K. voters are leaning toward staying in the EU.

November 2016: Around the time of the U.S. presidential election, markets around the world tumbled, while bitcoin prices spike 5% in a single day.

April 2017: Japan officially recognizes bitcoin as legal tender; by month’s end, bitcoin rallies 30%.

February 2018: China totally bans all bitcoin trading and shuts down all mining activity, leading to a massive 40% drop in value.

July 2019: President Donald Trump repeatedly tweets that bitcoin and other cryptocurrencies are “based on thin air,” which leads prices to plunge 30% in just a week. Just a few weeks later, tensions ramp up between the U.S. and China, and bitcoin rallies almost 10% after President Trump tweets his plans to enact additional tariffs on Chinese goods.

March 2020: Moving with other markets worldwide, bitcoin falls by over 50% as the fear of COVID-19 grips the world.

October 2020: PayPal launches a new service allowing its customers to buy, hold and sell cryptocurrency directly from their PayPal accounts. Bitcoin responds by rallying over 7% to a new high.

April 2021: Coinbase, the largest crypto platform in the U.S., announces it’s going public, and bitcoin prices respond by moving more than 6% to a new high of over $63,000.



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