Bitcoin Futures 1.0 vs. 2.0 - What Are the Differences?
Futures contracts are an established tool in the legacy financial system, and their appearance in the cryptocurrency space towards the heights of the 2017 bull run was met with great excitement.
Simply put, a futures contract is an agreement between parties to purchase or sell an asset for a set price on a given date in the future, irrespective of the market price. To better illustrate this in the context of cryptocurrency, suppose that Alice and Bob enter a contract wherein Alice agrees to sell 1 BTC to Bob for the price of $10,000 on September 1st, 2020.
In this case, it is said that Alice is shorting the asset, while Bob is longing it. We can assume that both parties are trying to make a profit, meaning that Alice anticipates the price will dip below $10,000 (allowing her to pocket the difference), whereas Bob believes it will go above (giving him access to discounted BTC).
In traditional industries, futures contracts serve two main purposes – hedging and speculation. In the former, individuals and businesses leverage futures to offset their exposure to risk on volatile assets, and in the latter, traders and investors make use of them to turn a profit.
Cryptocurrency futures may appeal greatly to seasoned cryptocurrency traders (as a method to mitigate risk), but also to newcomers that had previously avoided trading due to an unwillingness to handle cryptocurrency firsthand, or those reluctant to operate in a space they perceived to be lacking in regulatory oversight.
As it stands, however, the bulk of the industry is focused on what we’ll call Futures 1.0: that is to say, inverse (or nonlinear) futures. In what is undoubtedly attributable, at least in part, to the nascency of the space and subsequent lack of options, most of the cryptocurrency futures contracts available to investors today must be settled in the asset bet on – i.e. A BTC contract will be settled in BTC, an ETH one in ETH, etc.
This can create some friction: consider a scenario where an investor shorts an asset they believe will fail, but must nonetheless receive it at the contract’s expiry.
On the grander scheme, a proliferation of inverse contracts may deter institutional investment, as many traditional financial heavyweights do not want direct exposure to the assets being speculated upon.
At BTSE, we’ve been working hard to provide our users with options tailored to suit their own needs. We are the first platform to have integrated support for what we call Futures 2.0. You can post margin and choose to settle in any combination of fiat/cryptocurrency available on the BTSE platform, allowing you to tap into liquidity across a multitude of assets and markets. Our users are now free to choose from BTC, USDT, and ETH futures – the first of their kind – to launch in the near future.
Don’t want to get started with real funds? Learn the ropes with our testnet platform.
Our aim is to be the platform that offers you the most enjoyable trading experience. If you have questions or suggestions, please don’t hesitate to reach out to us at firstname.lastname@example.org or DM us on Twitter: @BTSEcom.