Crypto derivatives: the next step in the evolution of the kipto market

2019 was an explosive year for the crypto derivatives market. The number of new derivative products is significantincreased. Many exchanges have already added the ability to trade derivatives for major cryptocurrencies, which allows customers to maximize their profits.

But this is only the beginning, and in the future we can expect the emergence of many innovative products that will provide even more flexible opportunities for trading derivatives.

According to the CryptoRank.io analytical service, the total daily volume of bitcoin futures on top crypto exchanges regularly exceeds the mark of $ 35 billion.

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Starting from 2019, daily spot volumetrading on bitcoin repeatedly loses the volume of traded futures contracts. Can this be considered a growing crypto market or do traders simply lack volatility?

Bitcoin Futures Market Overview

The CryptoRank.io monitoring and analytics service, shows that the daily trading volume of Bitcoin futures is more than four times the volume of the spot market.

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The graph above shows that the daily volumefutures trading is more than $ 16 billion, while the volume of spot transactions is less than $ 4 billion (the adjusted real volume at 100 top crypto exchanges is taken into account).

Exchanges like Huobi, OKEx, Binance, and BitMEX account for nearly 80% of the daily volume of bitcoin futures.

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The ratio of futures and spot markets on the top cryptocurrency exchanges that offer both types of transactions can be seen in the chart below.

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As can be seen from the diagrams, the volumes of futures transactions on all exchanges many times prevail over spot ones.

What is the fundamental difference between bitcoin futures?

A futures contract is an agreement to buyor selling the asset at a later time at a predetermined price. It is a derivative instrument because its value depends on the underlying asset, Bitcoin. Every futures transaction needs a buyer and seller with the same amount and maturity.

When selling a futures contract, the seller defers settlement of it in time. In spot trading, settlement occurs at the same time as the trade.

It is important to note that futures trading does not occur in the same order book as spot trading.

What made traders move to the futures market?

There are four likely reasons thatthey are dominated by the volume of futures transactions - the ability to hedge and play for a fall, using a smaller deposit, the desire to trade increased volatility and growing the market.

The ability to hedge

So, for example, miners resort to usingfutures, hedging future earnings and reducing cash flow uncertainty. Institutional traders also often resort to this method: bitcoin buyer positions are hedged by short under a futures contract and vice versa - bitcoin shorts are hedged by long by futures.

Ability to play for a fall

During the rapid fall of Bitcoin,participants in spot trading tend to quickly reach stablecoins, while losing the opportunity to make money on the fall. At the same time, futures trading provides an elegant solution for making a profit - a downward game by opening short positions or on the short exchange stock slang (from the English short).

Using a smaller deposit

Many traders are not comfortablewhen they have to keep large amounts of equity in their wallet. In this case, leverage futures transactions help reduce the real volume of entry into the transaction, thereby eliminating the possibility of theft of funds when the exchange is hacked.

Increased volatility

Despite bitcoin collapses andups, such as March 12-13 (the price of the first cryptocurrency fell from $ 8,000 to $ 3,800), special categories of traders note a lack of daily volatility.

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This circumstance clearly prompted bored traders to trade futures with a huge leverage, up to 125X on Huobi and 100x on BitMEX.

Market Growth

As they grow older, the crypto market becomes more and more similar to the traditional stock market, where trading volumes of derivative instruments prevail.

Active development of bitcoin futures tradinghappened due to the launch of derivative sites. So, in 2019, we observed the start of futures trading on existing spot exchanges, including Huobi Globak, OKEx, Binance, BitMax and BiKi. In addition, in 2019-2020 new players came to the crypto derivatives market - FTX, Deribit, Bybit, Phemex and others.

As for traders, then, of course,Institutionals have long been aware of the additional benefits of futures trading. However, retail crypto traders have just begun to grasp the art of futures trading. Most likely, adapting to liquidation risks and applying optimal strategies in this regard is the key to the further development of the crypto derivatives market.

 

Posted by: Fedor Matviiv, CEO of CryptoRank