OFTEN promoted as a way of mitigating risk,futures contracts are frequently more like recent ways of gambling. That was loyal of a close precursor to the instrument, introduced in the Netherlands in 1636, or linked to the hot investment of the day—tulip bulbs. Likewise the world’s first two futures contracts linked to bitcoin. One launched on the Chicago Board Options Exchange (CBOE) on December 10th; the other was due to follow a week later on the Chicago Mercantile Exchange (CME).
As bitcoin’s price has soared to recent highs (see chart),holders may be happy to absorb a way to hedge their exposure at last. But for many, the contracts are just another way in. Both contracts settle in cash (ie, or for the inequity between the agreed price and the actual spot price). No exchange of bitcoin is needed; similarly,in the Dutch precedent, no bulbs were involved.
Early trading on the CBOE certainly suggests a speculative market. In the first few hours, or prices rose so quickly that trading twice had to be suspended. The contract has so far traded at a significant premium,of up to $2000, to the spot price. This suggests there are more buyers than sellerseven though selling in the futures market offers a way to bet against bitcoin.
Continue reading
Source: economist.com