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The big bitcoin investing decision: Coin or futures contract?


Since late last year, bitcoin futures have been traded on two long-established futures markets, the Chicago Board Options Exchange (CBOE) and the CME Group exchange. These heavily regulated exchanges solve many of the problems found on the newer bitcoin exchanges, according to Singh.

“Because the future can be traded on regulated markets, it will attract investors, making the market liquid, stabilizing prices, and [it will] not suffer from low transaction speeds of bitcoin [exchanges],” he said, adding, “If prices stabilize, we may start seeing more companies accepting bitcoin as a mode of payment. This may further bring liquidity to the market.”

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William Vranos, CEO at Green Key Partners, a New York City-based investment firm, said that the futures market is better equipped to handle spikes in volume, and that because futures traders don’t own bitcoin itself, they need not worry their bitcoin will be hacked or stolen.

A futures contract commits its owner to buy or sell an underlying commodity, currency or market index at a set price on a given date weeks or months in the future. In most cases the trader never takes possession of the corn, crude oil or bitcoin covered by the contract. Instead, gains or losses are reflected in the changing price of the contracts themselves as the underlying asset rises or falls.

To close a position, the trader sells the contract or buys an offsetting contract to profit on the difference between the current market price and the one the original contract specifies. A bitcoin trader who keeps a contract to the end receives a cash payment for a win or must ante up for a loss.

“There are a plethora of issues in the cryptocurrency exchange space at the moment,” said Kunal Desai,” CEO of Bulls on CryptoStreet, a site for cryptocurrency education. “One of the main pros of trading bitcoin futures is being able to speculate on its price without having to deal with the shortcomings of the cryptocurrency exchange space.”

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