Crypto Prices Fluctuation Resulted Into The Rise Of Derivatives

As Bitcoin repeated its boom-and-bust process, it was challenged by countless opponents, casting it off as "dead" and continuing to undergo wild price gyrations. Increasing numbers of traders began using derivatives to capitalize on these fluctuations.

The financial side of the Bitcoin economy was still relatively primitive in 2014, with derivatives networks such as BitMEX and BitVC on the cusp of launching in Hong Kong. In the early years, the future was the dominant form of bitcoin derivative, with OKCoin (now OKEx) establishing itself as one of the key venues. But, beginning in 2016, it was the eternal Bitcoin swap that stirred up traders and triggered an upward trend in derivative trading.

While futures are useful for hedging and arbitration, the expiry dates mean they aren't as attractive to investors wanting to take advantage of market fluctuations (especially if they want to hold on to a position past an expiry date for futures). Nevertheless, a futures contract's price can often deviate substantially from the underlying asset price.

The permanent Bitcoin swap offered a trading mechanism that had no expiry date and strengthened the link between spot markets and financial markets (because arbitration has been made easier). In addition, the innovative contract enabled traders to hedge BTC positions without having to touch the USD (if you owned 1 BTC, using a perpetual swap, you could shorten 1 BTC) and provided an easier way to take a position compared to future contracts.

The Road Ahead For Cryptocurrency Derivatives

2020 Favorable for Crypto Derivatives: In 2019, crypto futures prices surpassed those for spot trading. Futures are on track to blast past spot rates by 2020, and the trucking continues. The popularity of the Binance Futures and Bitmex derivatives platforms, as well as new products from the likes of FTX, Dydx, and Synthetix, has convinced many that 2020 could be the Year of Derivatives.

U.S. Regulations Will Be Friendly: Commodities and Futures Trading Commission (CFTC), the independent regulator that oversees the country's futures and options markets, recently suggested approval of a new crypto based derivative product sponsored by Ethereum by 2020.

Defi Integration For Perpetual Swap: Okex's new USDT-marginalized Perpetual Swap Trading is likely to gain traction, and decentralized derivatives products are expected to see wider use as the defi adoption progresses.

Traders’ Behavior Will Change: Despite Bitcoin futures trading platforms feeding on a variety of digital assets despite their appetite for high leverage, traders today are now being spoiled for choice. Traders are not limited to both BTC and ETH, either: if they feel bold, they can have long or short crypto.

Tough Competition Ahead: As derivatives firms fight for market share, battlegrounds are getting sharper focus. Blade, the exchange based in San Francisco, backed by venture capitalist Silicon Valley, has just announced its commitment to zero-fee trading–a flagrant affront to the perpetual Bitmex swap. The UMA Bitdex specification also provides a possible route to non-custodial perpetual swaps, but this idea requires further work. Bakkt is continuing to expand its custody portfolio and consumer-facing software to 2020, as well as its trading contracts.

Crypto derivatives platform development: The growing demand for crypto derivatives platform shows clear signs that businesses will need technological expertise assistance to help them launch their own crypto derivatives trading software that adapts to the changing needs of the traders.

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