Crypto Derivatives Arena Set To Boom Despite Present Bitcoin Dip: Latest LongHash Report


Crypto Derivatives Arena Set to Boom – Despite Present Dip

Recently, perhaps over the last few years, cryptocurrencies have developed and grown. 2019 has become a pivotal year, seeing more and more exchanges opening their doors to the crypto derivatives industry. This year we witnessed record volumes on crypto derivatives transactions.

The prediction, therefore, is that the market may be about to see exponential growth.

Trading In 2019

Earlier on this year, it was noted that BitMEX leveraged more than $61 billion of trading volume from crypto exchanges. The amount was exceeded in the subsequent month, at $78.6 billion. At the same time, CME (Chicago Mercantile Exchange) also recorded a high as the exchange observed a $6.6 billion Bitcoin volume.

Deribit, a Cryptocurrency exchange, saw Bitcoin options trading at volumes at almost 600 million over a weekend in May.

Kraken, a San Francisco-based entity said that trading on Kraken Futures hit a record $350 million in 24 hours, towards the end of June. The CEO and founder of Crypto Facilities (now rebranded as Kraken Futures after Kraken acquired them) Timo Schlaefer, stated that he expected derivatives to command the growth of the crypto markets, a lot like what we have already seen in the conventional financial markets. He believes that this will reduce price volatility and increase market transparency and efficiency.

Kraken Futures promotes leverage of up to 50 times on many derivatives to both retail and institutional investors in Ethereum, Bitcoin, Litecoin, XRP, and Bitcoin Cash. Their exchange has plans to expand their portfolio in response to customer demand as traders use the instruments to accompany spot trade strategies. Their trading platform includes an API for algorithmic trading and offers a low latency matching engine. It also consists of an instant margin service to manage derivatives positions.

Crypto Derivative Escalation

Mark Lamb, CoinFLEX CEO is predicting that by the end of 2020, the growth will be 20 times that of the underlying spot BTC market. He is basing this on the recent surge of exchange offerings.

The CEO of B2C2 Japan, Phillip Gillespie, states that hedge funds and financial experts are realizing that this is an opportunity to cash in. B2C2 is a cryptocurrency liquidity provider based in Tokyo. He also added that the more volume that goes through the derivatives exchange adds more liquidity entering the overall ecosystem, thus creating an interesting feedback loop.

Gillespie stated that the appeal of crypto derivatives exchanges had been reinforced by their ability to enable traders to bypass the traditional financial system. He feels that the reason why BitMEX is popular is that you can send Bitcoin without going through a banking channel. Gillespie explained that if you go into a major bank and request to wire $10,000 to BitMEX, some banks don’t process the funds to an exchange. BitMEX will only process via Bitcoin, avoiding such issues altogether. This is a key reason why some of these exchanges have become so popular.

BitMEX, the Seychelles-based exchange, offers anything up to 100 times leverage on its derivatives. Bitfinex, the Hong Kong-based cryptocurrency exchange has, in turn, unveiled plans for a product that will offer traders up to 100 times leverage.

In the US, new exchanges have also emerged, offering digital asset futures contracts. Earlier in July, a New York-based crypto-exchange called LedgerX acquired a DCO (derivatives clearing organization) license and then launched their Bitcoin call option product.

ErisX also obtained their DCO license in the same month. The Chicago-based entity plans to hold an upcoming clearinghouse which will clear contracts for digital asset futures.

In February, prior to ErisX, LedgerX, and CoinFLEX, an exchange based in Seychelles also engaged in crypto futures trading.

In December 2018, a Malta-based cryptocurrency exchange, OKEx, launched a crypto derivatives product, known as a Perpetual Swap.

There are so many new crypto derivatives offerings, all enabling traders to place bets on rising and falling crypto prices. These instruments can provide an opportunity for profits far higher than the initial stake. But if the investor makes an incorrect bet, their position is liquidated, resulting in a loss. Digital assets are highly volatile; hence, crypto derivatives are incredibly high risk. But as we all know, high risks can yield high returns.

The Future Of Crypto

The crypto derivatives market is real and is growing. The market did observe a slump after the interest surge. But the opportunity to yield high returns will continue to attract clients despite the high volatility associated with the products. Major officials have validated the crypto space, and regulators are starting to take notice. With that in mind, the growth prediction might bear fruit as virtual assets are irreplaceable currently.

Diar, a cryptocurrency data analytics research firm, published some research in May confirming that the boom in crypto derivatives was driven by institutional investor activity.

With crypto receiving growing attention from regulators, exchanges must improve KYC (Know your customer) and anti-money laundering (AML) policies. New entrants led by technologists who lack sufficient financial acumen entering the crypto derivatives arena will likely fail.

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