Yesterday, the cost of a single Bitcoin reached $10,000. Today, it was reported NASDAQ, the second largest stock exchange on planet Earth, plans to launch futures contracts for Bitcoin starting 2018. This will allow investors to invest and essentially bet on the rise and fall of the cryptocurrency and in essence profit on the future of price of the cryptocurrency.
It is important to note that NASDAQ is not the only finance firm to join in on the Bitcoin parade. Earlier this month, Chicago’s CME Group said they will begin providing futures contracts to investors.
The introduction of these new financial products will allow investors to more substantial risks on the rise and fall of Bitcoin. According to The Verge, Cantor Fitzgerald announced that they also plan to launch Bitcoin derivatives starting 2018.
As Bloomberg points out, the New York Stock Exchange owner Intercontinental Exchange Inc. will be the only one of the four major U.S. exchanges without public financial offerings for bitcoin derivatives.
What are Futures and Derivatives?
A derivative is a security with a price that is dependent upon or based on one more underlying assets. The value is depended upon the rise and fall of the underlying asset. Currently, investors can invest in derivatives where their underlying assets include stocks, bonds, interest rates and currencies. For instance, a futures contract is a type of derivative.
Future contracts are a type of financial contract which obligates the buyer to purchase an asset, for example, a Bitcoin, at a predetermined future time and price. The opposite is also true, a seller can create a futures contract, which obligates the seller to sell the assets at a later date and price.
All of these new financial instruments come with a warning. The financial collapse of 2008 is partly due to the rise of derivatives connected to real estate assets such as mortgages.