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How Does Futures Market Affect The Cryptocurrency Market?

08 September 15:12

Before the futures market launch, traders could earn only due to the increase in a price and not by a decrease in the price. They couldn’t speculate a decrease, and the only way to earn money with a decrease in the price is by short-selling the assets.

However, the debut of futures markets into the crypto world changed this. Traders can now earn money by speculating a decrease in the price as well. The future market started with Bitcoin in 2017, and we saw a sharp increase in the prices of Bitcoin almost immediately after. But post the increase in the first few days, we saw a gradual decline as well.

Here are a couple of reasons why that can establish how the futures market affects the crypto trading market.

Rise Of Prices

The initial rise can be attributed to a new opportunity or gateway into the crypto world. Most futures markets don’t need traders such as yourselves to own the underlying asset. You will merely predict the rise or fall, and the settlement will be done in cash once the transaction closes.

Hence with the opening of a futures market, everyone got excited since this was a new gateway for trading cryptocurrencies, and therefore there was a sharp increase in the prices.

This is a trait we see pretty often wherein every time, there’s something new and exciting in the world of crypto. We see numerous people jump on the bandwagon. The performance of the assets or the projects is impeccable in their initial run. With the futures market, it was no different.

Gradual Decline Of Prices

After the first few days, we saw a decline in the prices. Here’s why: The pessimistic traders got a chance to speculate a decrease in the Bitcoin price. However, they had to wait for some time since in the futures market; you decide a price and a date in the future when the asset will be bought/sold.

As a result, more people chose to bet on the decrease considering the volatility of the market. This, in turn, affected the spot trading prices, and they fell. So the pessimistic speculation led to the decrease in the futures and the spot markets’ prices.

The Equation Between Spot And Futures

The price decline back then was gradual. This can be because the initial buzz was dying out. Post that phase, when futures trading of various digital assets became normal, the spot market dictated the futures market prices.

This is because with spot markets, the price keeps fluctuating and the trends on the spot market are primarily mapped and analyzed to predict prices in the future. Hence the spot trading market usually affects the futures market.

However, since the futures market has a higher volume traded per transaction, it is also a significant medium for people with larger volumes of crypto to conduct their trades. Their speculations might also significantly affect the spot market.

Thus, a decline in spot market prices often affects the futures market prices, but in some instances, the scenario flips, and the speculations of futures affect the prices of the spot.

*This article only represents the views of observers and does not constitute any investment advice.

*The content of this article is original and the copyright belongs to Gate.io. If you need to reprint, please indicate the author and source, otherwise legal responsibility will be pursued.

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How Does Futures Market Affect The Cryptocurrency Market?

Rise Of Prices

Gradual Decline Of Prices

The Equation Between Spot And Futures

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