Understanding Futures Expiration And Its Impact On Prices

Effect on futures maturity and cryptocurrency prices

In the world of cryptocurrency, futures markets played a significant role in the development of prices. One of the key elements of these futures contracts is the expiration, which can significantly affect the values ​​of cryptocurrencies such as Bitcoin (BTC) and ETHEREUM (ETH). In this article, we are immersed in futures terms, its impact on cryptocurrency prices, and provides insights to investors.

What are the futures contracts?

A futures contract is a binding agreement for the purchase or sale of an asset at a predetermined price at a future date. In connection with cryptocurrencies, futures contracts usually involve a cash settings (called cash setle) to transfer a certain amount of the underlying cryptocurrency.

The futures expiration

Cryptocurrencies such as Bitcoin and Ethereum refers to the point where the contract will be worthless. This is usually done after one year from the date of entry into the contract. There are two types of futures contracts:
Cash Setle where there is no shipping and
Delivery where the investor must physically receive the funds.

Effect on cryptocurrency prices

The expiration of cryptocurrency contracts can have a significant impact on prices:

• Voatality : If the futures contract expires worthless, it becomes a «zero profit» contract, resulting in increased volatility on the market. The reason for this is that investors are not obliged to sell or buy at a predetermined price, causing rapid fluctuations in prices.

• Price spikes and sauces : Expired futures contracts can lead to fast price movements in both directions. For example, if a bitcoin contract expires on April 15, it is likely that the market will have a sharp drop (or «spike») on May 16 and then follows a rebound.

• Market reaction : When it comes to the expiry of the futures contract, you can trigger a market reaction in both directions. This may include selling pressure if investors expect prices to drop or buy pressure when prices rise.

Factors affecting the futures expirations

Many factors may affect the expiration of cryptocurrency contracts:

• Market Emotions : Investor emotions and market expectations play a significant role in determining the likelihood of an expiry event.

• Size of the contract : The size of the contract determines the potential impact on prices, larger contracts are volatile than smaller ones.

• Expiration dates : Contracts for specific dates can be influenced by factors such as holidays, economic events, or regulatory changes.

Example: Bitcoin futures expiry of

In order to illustrate that the impact of the futures maturity on the price of cryptocurrency, consider an example:

In April 2020, Bitcoin’s futures contract was set on May 7. If the price of bitcoin was about $ 10,000 at that time, there is no need for cash settlement or shipping. As a result, investors did not have any additional costs or risks.

However, when the expiry date approached and prices fell below $ 6,000 (the 50 -day moving average), market emotions became a bear and Bitcoin costs $ 10,500 to $ 3,600. The sudden loss of impairment on May 7, which investors did not expect, led to a sudden increase in volatility.

Conclusion

In summary, futures exhalation is a critical factor that can significantly influence cryptocurrency prices. Understanding these contracts and the factors that influence them are essential for investors trying to navigate the complex world of cryptocurrency markets.