A Cryptocurrency Derivatives Boom Is On The Way

Even while Bitcoin ETFs have stalled, a lot of cryptocurrency derivatives will be bursting into the market. With a spate of news reports being the harbinger of new derivatives, they vary from privately funded investment funds to public exchanges with a slew of players gearing up to launch or participate in the cryptocurrency derivatives ecosystem.

With funds rolling in, LedgerX, which is a Bitcoin trading platform has witnessed a seven-fold increase in volume in six months following the launch of cryptocurrency derivatives. Around 176 contracts have been traded in the first week of trading. With an increase of 40 percent monthly, LedgerX has initiated the first long term bitcoin futures option. With 2000 open interest contracts on the platform, it tops the market.

From where do the Cryptocurrency Derivatives come? 

 Experts have expressed the plans of the exchange to build a crypto complex adding that digital currencies were here to stay. Exchanges are interested in launching cryptocurrency-related exchange-traded nodes and exchange-traded funds. 

 An example is Grayscale investments with a fund that had spectacular returns is also doubling down on cryptocurrency. With plans to launch four of the new single currency crypto funds together with another fund with a basket of cryptocurrencies. New additions bring a total number of cryptocurrency-related investment funds in the company to eight.

 Another pioneer in New York-based TrueEx , the first exchange approved by Commodity Futures Trading Commission (CFTC) for Designated Contract Marketplace (DCM) swaps. It has partnered with the blockchain technology company Consensys promoting Ethereum, forming regulated derivatives marketplace for digital assets. The major goal is creating a benchmark rate for ether thereby creating the infrastructure needed for the broad adoption of digital assets. 

 Next is the big boss, Goldman Sachs, which hired a cryptocurrency trader specializing in derivatives to explore how to serve the best clients. It is serious about cryptocurrencies, such that news reports bring the good news of the Wall Street firm hiring Justin Schmidt who is known for his affiliation to crypto, heading the division of its digital assets. Schmidt comes from the rank of senior vice president with Seven Eight Capital, which is a quantitative trading strategy firm in New York. Before that, he was a portfolio manager with LMR Partners a UK based hedge fund. He comes with a bachelor's and master's degrees from Massachusetts Institute of Technology.

Along with this, Goldman has an upper hand in the cryptocurrency pie. Acting as a clearing agent for the Bitcoin futures at CBOE and CME, it is also an investor in Circle, a financial services app using blockchain which is the underlying technology for cryptocurrencies accomplishing cheap transfers. Rumors are doing the rounds that it is starting a trading desk for cryptocurrencies. But Goldman denies the rumors whereas online publications opine that Schmidt’s hire may change things.

 Crypto Derivatives Make considerable Difference To Crypto Markets 

 Even if at the first sight the launch of cryptocurrency derivatives seems to be unrelated development to crypto trading at numerous exchanges, there is a direct bearing on the market in two major ways.

 Firstly, they boost the liquidity and trading volume of coins other than Bitcoin. The crypto complex is set to include coins such as Ethereum and Litecoin. Grayscale also adds Ethereum, Zcash to their list of supported currencies. This helps raise awareness beyond Bitcoin and alternatives.

 Investors are largely shying away from other cryptocurrencies even though money was pumped into Bitcoin. The glaring disparity in trading volumes of the top three currencies is an example of this approach. Bitcoin was traded at $8.3 billion, Ethereum at $2.7 billion, ripple at $0.5 billion at the time of recording it. Institutional and regular investors are comfortable with other currencies that generate cash infusions into the market as more vectors invest through derivatives. This leads to less volatility in their prices.

 The second way is introducing more derivatives by private players putting pressure on regulators to examine their concerns regarding cryptocurrencies. There is a talk among the officials to bring the cryptocurrencies under the regulatory umbrella. But most of the exchanges have expressed optimism regarding the state of the currencies. With derivatives that are regulated by government agencies may not be a bad idea, it could tamp down on the volatility. 

 Conclusion

With markets facing huge competition, technology is evolving with many of the crypto derivatives growing shoot from the cryptocurrencies. These derivatives promise a future for crypto traders. More and more audience is being expected to carry this digital asset forward.