Does Cryptocurrency’s Future Have Much Riding on Crypto Futures Trading Options?
The crypto trading sector is evolving at a rapid pace, already being very much different than it was two years — or even one year — ago. For example, last year at this time, the so-called ‘crypto winter‘ was already at full swing. While analysts did not know it then, the bear market would drag on for an entire year. On the other hand, most have predicted that it will end quite soon and that Bitcoin will just return to $20,000 per coin, or maybe surge even higher.
As we know now, the bearish influence is still being felt, although it seems to have lost a lot of its strength, and coins are standing better than they were during the worst periods of 2018. However, the crypto sector has still not freed itself from the bearish grip, meaning that there is still a lot of reasons for caution.
On the other hand, there are still methods for crypto enthusiasts to profit, even during the bear markets, and one of the most popular ones is crypto futures trading. Even so, it remains a risky option due to market manipulation, and many are wondering if this is a real concern.
Crypto Futures Trading And Market Manipulation
Simply put, trading futures contracts is one of the investment strategies that rely heavily on risk management. Those purchasing futures contracts are basically making a bet that the future price of the asset will be lower than it is at the time of purchase. If this ends up being true by the time the contract expires, the investor can make money. This is called shorting or going short. There is also the opposite scenario, which is called longing or going long.
Traders can also apply leverage, which basically means that they are increasing the risk, but also the reward if they turn out to be correct. In a way, this can be viewed as gambling, but that has not stopped this type of trading from becoming a multitrillion-dollar industry.
This is also a great way to attract institutional investors to the crypto space without having to worry about legal issues, or having to handle the actual cryptocurrencies.
Of course, institutional investors have not yet let go of their fear of crypto and possible consequences of entering the market. Market manipulation is still a very real threat. If they were to enter crypto futures trading and invest large amounts, market manipulation could rob them of the opportunity to make a profit. To them, that is a rigged game, which is why many are hesitant to enter, despite the fact that they are attracted by the concept.
On the other hand, the crypto space is not the only one that suffers from such dangers. Indeed, traditional financial spheres are subjected to market manipulation too. JP Morgan, for example, got a $65 million fine last June for tampering with financial reports. CitiBank had to pay an even bigger fine, roughly around $100 million after it was investigated in all 42 countries in which it operates. Finally, there is Goldman Sachs, which was fined $120 million due to attempts to manipulate the dollar benchmark for interest rates in countries around the world.
And, while cryptocurrencies do enjoy large levels of transparency due to the fact that they operate on blockchain — which is technology built around the idea of transparency — crypto futures are traded off-chain, meaning that they do not enjoy the same benefits. Things would be better, in theory at least, if futures were sold on blockchain as well. However, that is not the case, and it is impossible to know how much would such transparency help in resolving the problem.
However, whether there is a threat of market manipulation or not — trading crypto futures has become a trend, as it is one of the best ways to profit from cryptocurrencies in a bearish market. The sector continues to grow and expand, with many exchanges already offering this type of trading on their platforms.
It is also estimated that crypto futures trading is much bigger than crypto trading itself, as it provides less cost, better liquidity, and it tends to be easier. This is not expected to change in the future, either, as more and more investors and traders choose to trade futures contracts, and more and more platforms are providing them with the safe environment for doing so.