For these of us concerned within the cryptocurrency area, we have gotten used to the fast-paced nature of this quickly rising trade. New expertise shortly turns into previous, vibrant shiny tasks lose their luster, and what began out as a couple of privateness advocates sending “magic web cash” to 1 one other has mushroomed into an entire new asset class with a strong infrastructure established round it. Each new product, utility or monetary instrument that we add has worth and attracts extra members. Choices buying and selling is a big step for the crypto derivatives market — and it’s already proving its value.
How the crypto area has grown
Forged your thoughts again to 2017 earlier than the Chicago Mercantile Trade or Chicago Board Choices Trade entered the cryptocurrency area with their Bitcoin (BTC) futures providing. Again then, the most typical expression you’d hear (time and time once more) about crypto was that it was similar to the “Wild, Wild West.” Lawless, risky, filled with rip-off tasks and preliminary coin choices over-promising and underdelivering, and even outright stealing traders’ cash.
Though Bitcoin had been round since 2009, it was very new to most individuals then. A number of the positive factors being made had been phenomenal — and the losses totally devastating. Many banks had been calling Bitcoin a rip-off together with (maybe most infamously) JPMorgan’s CEO Jamie Dimon, who said it was a fraud again in September 2017.
Quick-forward to right this moment and each financial institution wants to combine blockchain expertise (or already has) to boost effectivity and scale back prices. JPMorgan and its boss have proven a whole 180 diploma flip, going so far as launching their own JPM Coin to facilitate instantaneous funds.
The USA’ largest monetary establishments have even opened financial institution accounts for main U.S.-based cryptocurrency exchanges, whereas governments world wide are both researching or actively piloting their very own model of a cryptocurrency backed by their central banks.
The purpose is that cryptocurrency can now not be ignored. With improved regulation and decisive motion, we’ve got managed to weed out most of the dangerous actors and rip-off tasks to develop the area nearly past recognition.
The rise of crypto derivatives
The derivatives space has now attracted investment from institutional gamers and, final yr, a landmark transfer from a New York Inventory Trade-backed firm to enter the market with its physically-settled Bitcoin futures contracts. Certainly, the expansion of crypto no matter bull or bear markets has been exponential and now, derivatives are main the cost. But, we nonetheless have an extended solution to go.
The complete cryptocurrency market cap continues to be below $300 billion right this moment. Compared to gold at $9 trillion or the worldwide inventory market at nearly $100 trillion, it’s clear that crypto continues to be in its infancy.
When taking a look at conventional markets, derivatives sometimes account for greater than 4 occasions the commerce volumes of the underlying asset. But, in crypto, spot buying and selling continues to be a lot bigger. That received’t be the case for for much longer. At OKEx, it’s our perception that derivatives will outgrow the spot shortly to turn into 4 or 5 occasions bigger over the approaching years. And this development will likely be additional fueled by extra subtle choices similar to choices buying and selling.
The significance of choices buying and selling
Choices are so vital, as they offer merchants extra versatility and a good way to hedge their danger. Like futures, with choices contracts, merchants should buy or promote an agreed quantity of the underlying asset on a hard and fast date sooner or later at an agreed-upon worth. Nonetheless, in contrast to futures, choices give the customer or vendor the suitable, fairly than the duty, to purchase or promote on the date.
This relies on whether or not the dealer buys a “name” possibility or a “put” possibility. Briefly, the distinction between the 2 is that with the previous, the dealer can train the suitable to purchase Bitcoin (or the asset in query) and with the latter, he or she can train the suitable to promote. Since these are rights and never obligations, many merchants really feel extra comfy buying and selling choices particularly in such a extremely risky market as crypto.
Choices are a comparatively new function. Deribit was the only exchange offering crypto-backed options till mid-2019, adopted by Baakt in December 2019 and OKEx and CME launching BTC choices quickly after. Regardless of their transient time within the area, crypto-backed choices are already being extensively utilized by BTC merchants to generate an earnings and defend their holdings from rampant volatility. They’re additionally significantly helpful for miners proper now because of the Bitcoin halving. They will use choices to lock in future income and safe a suitable worth for promoting mined Bitcoin, very like farmers in historical Greece did to safe their earnings within the occasion of a foul harvest. We saw this happening main as much as the halving in April because the BTC worth turned bullish once more and BTC choices registered a one-month excessive, with OKEx topping the leaderboard.
As with each innovation and product providing, the market turns into extra attention-grabbing, extra mature and extra reflective of conventional markets. And permitting merchants to maintain their pricing methods extra versatile is extra interesting to institutional merchants.
Past Bitcoin choices buying and selling
After all, Bitcoin’s dominance available in the market is plain. Of the 1000’s of cryptocurrencies which have grown up round it, Bitcoin dominance still remains at round 65%. Bitcoin can be extra extensively accepted and higher understood. It will likely be the gateway for most individuals and establishments into crypto buying and selling and derivatives. However that doesn’t imply there isn’t a spot for different crypto choices as effectively.
At OKEx, one of many primary causes that we’ve got continued to thrive and turn into a number one alternate is thru our sheer range of merchandise. After seeing the excessive demand for BTC/USD choices, OKEx is adding ETH/USD options for traders this week as effectively, and we consider it’ll achieve traction quick.
All these options assist to diversify the market, make it extra colourful, wealthy and attention-grabbing. The crypto derivatives area is turning into extra aggressive with new entrants coming in on a regular basis. This will solely be a superb factor for the area. Over the approaching years, we’ll witness the volumes go from the billions of {dollars} to the trillions, and crypto will turn into a significant contender finally.
The views, ideas and opinions expressed listed here are the writer’s alone and don’t essentially replicate or characterize the views and opinions of Cointelegraph.
Jay Hao is a tech veteran and seasoned trade chief. Previous to OKEx, he centered on blockchain-driven purposes for dwell video streaming and cell gaming. Earlier than tapping into the blockchain trade, he already had 21 years of stable expertise within the semiconductor trade. He’s additionally a acknowledged chief with profitable experiences in product administration. Because the CEO of OKEx and a agency believer in blockchain, Jay foresees that the expertise will get rid of transaction limitations, elevate effectivity and finally make a considerable influence on the worldwide economic system.
