Future Price

What is the Future price. How is the simulated future price calculated?

Bitcoin Future Price

The simulated future price of Bitcoin is displayed on the trading screen.

The current price of Bitcoin, shown inside the clock, is known as the SPOT or CASH price.

The future price represents the price of Bitcoin at a future date, based on the current Spot price.

How does this work?

If spot price is $60,000 what is the expected price of bitcoin 6 months from now?

The expected value of Bitcoin is calculated from the current $60,000 spot price.

E(Bitcoin)=E($BTCUSD)=E($60,000)E(Bitcoin) = E(\$BTCUSD) = E(\$60,000)

What will be the value of $60,000 in 6 months? To find out, take $60,000 and multiply it by the risk-free interest rate. If the interest rates are at 10%, then:

E(60,000)=60,000βˆ—(1+0.10/2)=63,000E(60,000) = 60,000 * (1 + 0.10/2) = 63,000

Thus, the expected future price is $63,000.

Basis / Cost of Carry

The difference between Futures and Spot prices is known as the Basis, which reflects the cost of carrying Bitcoin.

60,000 - 63,000 = -3,000

The cost of holding bitcoin for six months in our scenario is $3,000. This cost arises from the potential $3,000 in lost risk-free interest compared to holding US dollars.

No Arbitrage Pricing Model

  1. No Arbitrage Pricing Model (NAPM):

    • The NAPM is a fundamental concept in finance that ensures there are no risk-free profits available without investment.

    • It prevents arbitrage opportunities by ensuring that mispricings are corrected over time.

    • If an asset can be bought or sold at different prices in different markets, arbitrageurs can exploit these price differences to make risk-free profits.

  2. Scenario:

    • You have a guaranteed opportunity to buy Bitcoin at $63,000 in 6 months.

    • If the current market price of Bitcoin is below $60,000, you can:

      • Borrow dollars, pay 10% interest.

      • Sell the future price.

      • Buy the spot price.

      • At expiration, you receive $63,000, but the interest cost is less than $3,000. This results in a free profit!

    • Conversely, if the current market price of Bitcoin is above $60,000, you can:

      • Borrow Bitcoin.

      • Sell it for dollars.

      • Earn 10% interest.

      • Buy the future price at $63,000. Again, this results in free profits!

  3. No Arbitrage Theory:

    • The theory asserts that risk-free profits should not exist.

    • If the current price of Bitcoin is $60,000, the future price must indeed be $63,000 to eliminate any arbitrage opportunities.

    • Markets should correct mispricings over time, ensuring no risk-free profits persist indefinitely.

Remember to consider transaction costs, liquidity, and real-world factors when implementing arbitrage strategies. While markets are not always perfectly efficient, true risk-free profits are rare. πŸš€πŸ“ˆ

Future Price of Bitcoin: A Reflection of the Present

Key Point

The future price of Bitcoin is intrinsically tied to its current price. In other words, trading Bitcoin’s future price is essentially equivalent to trading its spot or cash price.

Understanding the Dynamics

  1. Delta of 1 for Futures Prices:

    • Unlike options prices, which follow complex non-linear formulas relative to the spot price, futures prices exhibit a straightforward relationship.

    • Futures prices have an essentially Delta of 1. This means that for every $1 movement in the spot price of Bitcoin, there should be an equivalent $1 movement in the futures price, adjusted for interest over the specified period.

  2. Future Price vs. Anticipated Value:

    • The future price of Bitcoin does not directly reflect the anticipated increase or decrease in its intrinsic value.

    • Instead, it represents the current price of Bitcoin plus the expected cost of holding Bitcoin until the future date specified in the futures contract.

  3. Market Expectations:

    • When the market anticipates that the price of Bitcoin will increase in the future, the current spot market price already incorporates that expectation.

    • This accounting includes considerations for costs (such as storage or financing) and prevailing interest rates.

Speculating on Bitcoin Prices

  • Trading forward contracts allows investors to speculate on the current price of Bitcoin by considering its future value.

  • By understanding this relationship, traders can make informed decisions based on market dynamics and expectations.

Bitcoin L2 Sidepit

  • The Bitcoin L2 Sidepit is a platform for trading the future value of dollars in Satoshi terms (one hundred millionth of a Bitcoin).

  • $USDBTCZ24 is the ticker symbol for the USD priced in Bitcoin for December 2024, with 'Z' denoting December.

  • When the $USDBTC is trading at 1587, it equates to a Bitcoin price of $63,012.

1587 Sats Per Dollar = 0.00001587 Bitcoin Per Dollar 
1 Dollar / 0.00001587 = $63,012 

Using the calculator on the trading screen will give you the same result.

100 million divided by USD price in Sats, equals Bitcoin Price in USD

100,000,000 / 1587 = 63,012

Last Price is Future Price

In conclusion, the future price displayed is a simulated calculation derived from the current bitcoin reference price and serves as an approximate estimate of the USD Sidepit future prices when expressed in dollars per bitcoin.

When trading on Sidepit, it is essential to compare the Price (Last, Limit, Bid/Ask) with the simulated future price, rather than with the current price of bitcoin.

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