Are derivatives the future of the Bitcoin market?

 At the end of 2019, the trading volume of the Bitcoin derivatives market was above that of the spot market for the first time. Is the future of the Bitcoin market in trading in warrants, futures, swaps and Co.?


According to the Bank for International Settlements (BIS), global over-the-counter (OTC) trading in derivatives in 2019 was $ 640 trillion. For comparison, the global gross domestic product was about five times smaller in the same year at $ 140 trillion. Derivatives are financial instruments, the value of which depends on an underlying investment object or a group of investment objects. Classic derivatives are options, swaps, futures or forwards. Due to their sometimes complicated structure, a large part of derivatives trading is carried out by institutional financial service providers such as banks or hedge funds – this applies particularly to the OTC market.


Who needs Bitcoin futures?

Private investors are sometimes suspicious of the derivatives market – too opaque, too risky. And anyway, isn’t hodln the strategy of choice for highly volatile assets like cryptocurrencies anyway? However, it is often overlooked that derivatives play an important role in liquid markets such as the crypto market. In this way, they enable short positions, e.g. betting on falling prices, reduce volatility and ensure more efficient pricing. Especially with new asset classes like BTC, the latter is a necessary step so that the cryptocurrency can find its way into traditional portfolios.