Investors new to the cryptocurrency marketplace, especially bitcoin futures, might be reticent to express their reservations about the market’s differentiating features to the traditional commodity futures marketplace.
ETF provider ProShares, the progenitor of the first bitcoin futures fund in the U.S., the ProShares Bitcoin ETF (BITO), dispelled myths regarding the leading cryptocurrency’s futures. Specifically, the company addressed how commodity futures and bitcoin futures do share some similarities.
That said, having a veil of regulation that governs the commodity markets applies to bitcoin futures. Conversely, bitcoin tokens by themselves can trade on unregulated exchanges, leaving investors prone to possible hacks.
“Bitcoin futures operate in the same manner as other commodity futures, which provides several key benefits,” Simeon Hyman, Global Investment Strategist at ProShares, said. “They are traded on futures exchanges that are highly regulated to ensure market integrity and protect against market manipulation and have price stabilization rules to guard against ‘flash crash’ events.”
“There are also no custody issues with futures contracts—cash bitcoin that is held in wallets can be hacked or become inaccessible,” Hyman added.
Maturing Faster Than Its Age
Despite BITO making its debut just last October in the U.S. markets, the bitcoin futures market is maturing quicker than its age reflects. As such, investors need not fret when contemplating whether the market is seasoned enough to withstand market disruptions like the current sell-off.
“Bitcoin futures are a relatively young financial instrument, however, and that might prompt some to ask what implications that may have,” Hyman explained. “As it turns out, bitcoin futures appear to be maturing quickly.”
One of the challenges with a fairly new market is a reflection of value, particularly when dealing with multiple exchanges that offer bitcoin. In order to collate prices and get the closest reflection of value, bitcoin futures can offer that type of price parity.
“There is evidence that bitcoin futures are the best reflection of value, more accurately reflecting market sentiment and resolving the price challenges of multiple bitcoin exchanges,” Hyman added.
One of the byproducts of the rise in popularity is the number of investors entering the marketplace. That, in effect, translates to more market liquidity, which also speaks to the rapidly maturing crypto market and the associated bitcoin futures market.
“The bitcoin futures market is also the most liquid venue to obtain bitcoin exposure—with average daily volume of front month CME bitcoin futures trading activity in 3Q21 was over 70% greater than the largest US bitcoin exchange (Coinbase),” Hyman said.
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