What is Bitcoin?
Cryptocurrency is a digital asset designed to work as a medium of exchange using cryptography to secure transactions, control creation, and verify transactions. The first such cryptocurrency, Bitcoin, was introduced in 2009. In 2017, the exchanges launched a Bitcoin futures contract. The CBOE contract launched on Sunday, December 10, while the CME contract launched on Monday, December 18.
In simplest terms, Bitcoin is an exclusively digital form of money. Created in 2009 by an anonymous programmer under the alias “Satoshi Nakamoto,” Bitcoin is a decentralized peer-to-peer online payment system. Employing a technological construct known simply as the “blockchain,” Bitcoin is lauded for being extremely secure, accurate, and untraceable. An intricate code makes every Bitcoin unique within the blockchain and unable to be counterfeited. In comparison to conventional forms of currency, Bitcoin has several unique advantages: User anonymity, low fees and costs, rapid transaction spreads, and mobility.
While the technology behind Bitcoin is cutting-edge, it is relatively easy to use. Simply acquire Bitcoin, store it, and then transfer at your discretion. To acquire, you either receive Bitcoin from another party or purchase them directly from an exchange. Purchasing Bitcoin from an established exchange – such as Coinbase or Bitstamp – is straightforward: Open an account with the exchange, link a bank account, credit or debit card, and purchase.
The ability to store Bitcoin is a crucial aspect of its function. In order to accomplish this, you must create a Bitcoin “wallet.” The wallet serves as both storage and mode of transfer. Much like a bank account and cash, you can store Bitcoin in the wallet then transfer it in and out at your leisure.
How is Bitcoin’s Value Determined?
Bitcoin’s value has been an ongoing debate since inception. Like fiat currency, its value hinges upon consumer confidence. However, unlike traditional money, Bitcoin cannot be created out of thin air and has a finite supply. Because of this there are comparisons to Gold. The only way that new Bitcoin can be created is through a process called “mining.” Bitcoin mining occurs when users process transactional data into “blocks” and then add them to the blockchain. As payment for this service, miners are awarded specific amounts of new Bitcoin. Upon its launch, the maximum supply of Bitcoin was predetermined to be 21 million.
- From January 1, 2017, to December 1, 2017, Bitcoin experienced a 1000% appreciation, rising to $10,006.30 from $997.69.
- Bitcoin’s market capitalization is valued north of $168 billion
- One Bitcoin is worth over 7 times more than one ounce of gold
What is Bitcoin’s Place in Futures Trading?
Futures contracts provide investors with the opportunity to buy and sell Bitcoin without having to pay, and store, the actual currency. By trading on exchanges, the highly regulated marketplace is available nearly twenty-four hours a day, five days per week. This gives you the flexibility to invest and divest at the optimal time for your specific trading strategy. You can use the futures market to hedge physical Bitcoin in your “wallet.”
The symbol for the CBOE exchange Bitcoin futures contract is XBT. The futures contract trades in U.S. Dollars and is cash-settled based on the Gemini Exchange Auction price for Bitcoin. The market opens at 8:30 AM CT and closes at 3:15 PM CT, Monday through Friday. Additionally, the market trades overnight from 5:00 PM CT on to 8.30 AM CT on Sundays, and from 3:30 PM CT to 8:30 AM CT Tuesday through Friday. The contract multiplier is one Bitcoin. 10.00 points is equal to $10.00 per contract and trades in 0.01 point increments, equivalent to $0.01. The XBT futures contract is not subject to price limits. The margin requirement is set at 40% of the contract value, though this is subject to change.
The symbol for the CME exchange Bitcoin futures contract is BTC. The futures contract trades in U.S. Dollars and is cash-settled defined by the CME CF Bitcoin Reference Rate (BRR) price for Bitcoin. The market opens on Sunday at 5:00 PM CT and trades through Friday closing at 4:00PM CT. There is a 60-minute break each day beginning at 4:00 PM CT. The contract multiplier is five Bitcoin. The minimum price fluctuation is $5.00 per Bitcoin which is equal to $25.00. The BTC futures contract price limit structure will be similar to that of the CME equities products. The margin requirement is set at 35% of the contract value, though this is subject to change.
Sources:
https://www.danielstrading.com/futures-trading-education/2017/12/06/bitcoin-futures-101
http://www.cmegroup.com/trading/equity-index/us-index/bitcoin_contract_specifications.html
http://cfe.cboe.com/products/bitcoin-qrg.pdf
Risk Disclosure
The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.
Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.
© 2021 StoneX Group Inc. All Rights Reserved
