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What Are Micro Bitcoin Futures?


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Bitcoin has been making waves since the first block in its blockchain launched in 2009. While its latest values have been far from its all-time high – when the quintessential crypto sat above $64,000 in late 2021 – plenty of investors still believe in its potential, claiming it could one day reach $100,000.

However, many people remain skeptical about investing in Bitcoin, primarily because it’s been historically volatile. Fortunately, there’s an investment that could work for investors who are hesitant about Bitcoin — but still want to get involved in crypto investing. Micro Bitcoin futures are a newer option available through the Chicago Mercantile Exchange (CME Group), and they let investors bet for or against Bitcoin. If you’re wondering what micro Bitcoin futures are, how they work and more, here’s what you need to know.

Futures investing is nothing new. With a futures contract, two parties agree to move forward with a particular investment trade on a specific date in the future. Along with choosing the time of executing the trade, the contract outlines the quantity of an asset a buyer will purchase and the price.

For example, a futures contract might state that a buyer will purchase five shares of a specific stock from the seller next Tuesday for a price of $50 each. Regardless of the stock’s actual market price at the time the contract executes on Tuesday, the buyer pays the seller $250 for the five shares.

Micro Bitcoin futures are the same concept, but they involve Bitcoin instead of stock shares. Previously, Bitcoin futures were higher value contracts. Many platforms had specific minimums when it came to the number of Bitcoins covered in a futures contract. For instance, the smallest contract available through the CME Group involved the equivalent of five Bitcoins. With prices sitting near $19,600 — an actual figure from August 2022 — that would total out to $98,000, which is a sizable commitment.

With micro Bitcoin futures, there’s a smaller contract size. Instead of requiring contracts to be the equivalent of five Bitcoins, the smallest option is just one-tenth of a Bitcoin. Based on the value stated above, that would make the lowest-price Bitcoin contract just $1,960.

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How Micro Bitcoin Futures Work

The Chicago Mercantile Exchange uses the CME CF Bitcoin Reference Rate (BRR) to establish pricing for all Bitcoin futures, regardless of size. The BRR has a tick size of $5. So, the BRR shifts in $5 increments. For micro Bitcoin futures, that leads to a tick value of $0.50 on contracts. Again, that’s because the lowest price is one-tenth of a Bitcoin based on the BRR rate.

Usually, investors compare the current BRR rate, available contract prices, contract end dates, and similar data as a starting point. Next, they’ll factor in market data to attempt to assess whether the price of Bitcoin may rise or fall before an available contract closes and executes. That helps them determine if a contract may represent a gain or a loss.

The goal is to find a micro Bitcoin futures contract that has the biggest potential for a gain based on the investor’s position. If the contract lets a buyer purchase the Bitcoin for less than market value at the time of execution, the buyer comes out ahead and the seller experiences a loss. If the reverse happens, the seller gains while the buyer loses.

In many ways, futures of all kinds — including micro Bitcoin futures — essentially involve betting that one position will come out ahead of the other. In that regard, it’s akin to gambling. But, you aren’t playing against the house — you’re playing against another investor.

For futures contracts to exist, both the buyer and seller have to reasonably believe they’ll be the ones who win. Otherwise, they wouldn’t agree to the terms of the contract. As a result, there’s typically data that makes both positions seem reasonably likely to come out ahead, and that’s part of why futures trading is inherently tricky.

How to Purchase Micro Bitcoin Futures

If you want to purchase micro Bitcoin futures, you need an account with a brokerage firm that provides clearing and execution services in that arena. The CME Group maintains a list of cryptocurrency futures commission merchants (FCMs), which is typically the best place to start. However, the list isn’t all-inclusive, so keep that in mind.

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Deciding Whether Micro Bitcoin Futures Are Right for You

Whether or not investing in micro Bitcoin futures is right for you depends on your portfolio composition, investment strategy and risk tolerance. One of the most common investing tips is to diversify. If you want to explore cryptocurrency — and Bitcoin specifically — but are wary of crypto exchanges, managing digital wallets or otherwise navigating an unregulated environment, micro Bitcoin futures could be a reasonable alternative. Similarly, the tax aspect of going with micro Bitcoin futures is generally less complex than if you buy and sell Bitcoin.

Since all micro Bitcoin future transactions are handled in a single marketplace, you also get the advantage of full transparency. Every investor sees the same information, including prices and quotes. That differs from buying Bitcoin on exchanges. There, prices may vary from platform to platform.

Finally, micro Bitcoin futures are more cost-effective because they allow investors to gain entry to the crypto market for a fraction of the price of Bitcoin. Plus, the level of commitment is low. That may seem like a better option when compared to purchasing a volatile asset outright.

However, there are drawbacks to consider, too. One of the most significant is that futures come with a degree of risk. Both the buyer and seller believe their position is the strongest, and only one will end up proven right. As a result, one of the two parties typically loses some money — potentially a substantial sum.

Couple that with Bitcoin’s volatile nature, and predicting whether you’re in the best position can be difficult. In the end, there’s no underlying asset associated with Bitcoin. Prices are based on investor whims and shifting sentiment, which can be fickle. Be sure to keep your level of risk tolerance in mind before committing to a Bitcoin futures contract.

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