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The crypto space is brimming with different products and services for users looking for a way to make good profits. One of these products is crypto derivatives, and over the years, it has grown to become one of the most popular and traded products on several exchanges. In this article, we look at crypto derivatives in general with a focus on recent trends.
Derivatives have roots in traditional finance where it describes an investment deriving its value from the underlying product. In the crypto world, this underlying asset is a cryptocurrency, mostly Bitcoin. Traders get to speculate on the value of this underlying asset and take advantage of their leverage. A good example of derivatives in the crypto space is Bitcoin futures.
With a futures contract, the two parties will agree to buy or sell the cryptocurrency on a particular day at a specific amount. This means that no matter what the actual market price is at that time, the price they will sell is already predetermined. This doesn’t just traders wager on prices but also presents a hedging opportunity as a trader can mitigate price fluctuations.
Traders also get to use leverage which gives them the opportunity to borrow to finance the contract. This way, they can have a greater position without putting too much equity into it.
Crypto futures are not the only derivatives available. There are perpetual contracts similar to crypto futures, except that they don’t have a time limit. This allows traders to enjoy the benefits of spot trading while still having access to leverage and can hedge their risks. In perpetual contracts, traders can hold a position for as long as possible; all they have to do is fund it every 8 hours to keep it open.
CEOs Talks About Their Firms Crypto Derivatives Option
Another trend in derivatives is options which are just like futures except, for one thing, the parties are not obligated to buy or sell when the contract expires. Traders can buy call options that will give them the chance to purchase the asset at a specified price at a particular time, or they can choose not to buy it.
With these many crypto derivatives available, several crypto exchanges are already jumping on the trend and making these products available on their platform. A good example of this is Bitfinex which offers perpetual futures. As far back as the first quarter of 2020, its CTO, Paolo Antonio, revealed that it would introduce options trading.
Another major player in the crypto derivatives market is Bybit. This crypto exchange has announced its plans to expand its derivatives trading offerings. In a release by its CEO, Ben Zhou, it will be going beyond its current offering which allows users to BTC, ETH, Doge, etc., using Inverse Perpetual, Inverse Future, and USDT Perpetual contracts. It will now offer options trading and also add more USDT pairs.
Bitmex also offers derivatives, and its CEO, Alexander Höptner, released a statement recently where he discussed the company’s overall plans for the future. According to him, the rapid evolution of the crypto space means Bitmex also has to evolve, and one of the ways it chooses to do this is with its derivatives offering. The exchange intends to expand its derivatives products so that users will have more access to more diverse offers while the exchange continues to prioritize its derivatives offer.
It is crystal clear that there is a growing interest in crypto derivatives and the reason for this is not far-fetched; the CEO of the derivatives exchange, Bybit, Ben Zhou, explains this reason best. In his view, derivatives play crucial roles in the market. It contributes to liquidity, gives multiple options of products, and provides risk management tools, all of which have helped its adoption and growth. The growth of DeFi has also spurred the interest in derivatives, and options have proven especially helpful for many traders who want to hedge their exposure.
While Bybit remains one of the largest derivatives exchanges today, other big-name players are already in the market and making significant moves. Binance launched Binance Futures back in 2019 and is now one of the largest futures exchanges by open interest with more than 180 pairs. There are other platforms such as decentralized exchange DyDx and FinNexus that offer crypto-derivatives.