The Role of BTC futures trading in determining the price of BTC after the halving

in Project HOPE2 years ago

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In finance, a futures contract (more colloquially, futures) is a standardized legal agreement to buy or sell something at a predetermined price at a specified time in the future, between parties not known to each other. The asset transacted is usually a commodity or financial instrument. The predetermined price the parties agree to buy and sell the asset for is known as the forward price. The specified time in the future—which is when delivery and payment occur—is known as the delivery date. Because it is a function of an underlying asset, a futures contract is a derivative product. - Wikipedia

Basically, Bitcoin futures allow you to maximize your returns by utilizing the power of leverage to multiply your profits and apply advanced trading strategies. You can use futures to speculate on the direction of the market and minimize risk, all while holding less crypto than on a spot exchange.

Futures, or futures contracts, are an agreement to buy or sell an asset at a later date for a fixed price. They are typically used by traders as a way to hedge other investments or to lock in profits when trading in volatile markets.

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Futures are extremely capital efficient, meaning that less money is required to open positions than if you were spot trading or margin trading. This means if you have 10 BTC and are scared of price dumping, you have to trust 100% of your money to spot exchange to sell, or 20% of your money on margin exchange. But with futures, you trust as low as 2% of your money on exchange.

Using collateral as low as 2% of the notional amount, bitcoin futures allow you to take positions with up to 50x leverage -- giving you flexibility to position yourself in the market while maintaining low exchange risk.

Now that we know what futures trading is, I hope we can see were I'm going with this. Traditionally, on a normal spot exchange to trade 10BTC, you must actually have 10BTC. but in future trading you can leverage up to 50x so you don't need to have the entire volume.

Now remember that the price of BTC has been observed to increase after the last two halvings because supply reduced and demand increased. Well as at the last halving in 2016, people were not trading bitcoin as futures yet so the supply actually mattered. You get where I'm going with this now?

With the introduction of bitcoin futures trading, bitcoin lost its scarcity advantage. So if the supply doesn't matter anymore, will the increase in demand matter?

So you see why this year's halving is unique? We can't tell what will happen!!

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This is the first time we'll see these new variables starring in bitcoin's movie. If you ask me I don't even think just two halvings are enough to build a pattern from.

So before you buy BTC or think of Hodling to make huge profit after the halving, consider these factors before making your choice.

Truth is, only few people know about these things and they may not want to say it out, so as not to damage the "pre-halving" hype, after all what's crypto without the hype?

I'm no financial expert, I just want you to see things just as they are, what you do with the information you've received is up to you.

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BTW, I apologize for not being able to reply comments on my previous posts. This was due to the fact that I was low on SP. But thanks to crypto.piotr for delegating some SP to my account.