Understanding the expiration of the future and its impact on cryptocurrency prices
In the cryptocurrency world, future markets emerged as a significant participant in price formation. A key component of these future contracts is expiration, which can significantly influence the value of cryptocurrencies such as bitcoin (BTC) and Ethereum (ETH). In this article, we will deepen the concept of future expiration, its impact on cryptocurrency prices and provide information for investors.
What are future contracts?
A future contract is a binding contract to buy or sell an asset at a predetermined price at a future date. In the context of cryptocurrencies, future contracts usually involve the exchange of a cash settlement value (known as “cash settlement”) in exchange for the delivery of a specific amount of underlying cryptocurrency.
Future Expiration
When it comes to cryptocurrencies such as bitcoin and ethhereum, expiration refers to the point where a contract becomes useless. This usually occurs after one year from the date of entry into the contract. There are two types of future contracts:
Cash Settle , where no delivery is involved and
delivery , where an investor should physically receive their cash settlement.
Impact on cryptocurrency prices
Expiration of future cryptocurrency contracts can have a significant impact on prices:
- This is because investors are not required to sell or buy for a predetermined price, causing prices to float rapidly.
- Picos and price dives : Expiration of future contracts can lead to rapid price movements in both directions. For example, if a Bitcoin contract expires useless on April 15, the market is likely to experience a sharp drop (or “Spike”) after May 16, followed by a rebound.
- Market reaction
: When the expiration of a future contract is announced, it can trigger a market reaction in both directions. This may include sales pressure if investors expect prices to fall or purchase pressure if prices precede rise.
Factors that influence future expiration
Several factors can influence the expiration of future cryptocurrency contracts:
- Feeling in the market : Investor’s feeling and market expectations play a significant role in determining the likelihood of a shelf life.
- Contract size : Contract size determines the potential impact on prices, with higher contracts being more volatile than minors.
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Example: Expiration of Bitcoin Futures
To illustrate the impact of future expiration on cryptocurrency prices, let’s consider an example:
In April 2020, a Bitcoin future contract was scheduled to expire on May 7. If the price of Bitcoin remained stable around $ 10,000 at that time, there would be no need for settlement or cash delivery. As a result, investors would not have faced additional costs or risks.
However, when the due date approached and prices began to fall below $ 6,000 (the 50 -day moving average), the market feeling became low and the price of Bitcoin fell from $ 10,500 to $ 3,600. The sudden loss of value on May 7, which was not foreseen by investors, led to a strong increase in volatility.
Conclusion
In conclusion, future expiration is a critical factor that can significantly affect cryptocurrency prices. Understanding how these contracts expire and the factors that influence them is essential for investors seeking to browse the complex world of cryptocurrency markets.
