The Rise Of Crypto Derivatives In 2020. But What Are They?

The cryptocurrency market has exploded into a diverse ecosystem with over 2,000 coins and tokens, each focused on a particular type of application and use case that is developed using innovative blockchain technology.

There are growing innovations that would warrant cryptocurrencies being more open and more knowledgeable. Another such advance is the launch of a cryptocurrency derivative, a brand-new financial product line. The value of crypto futures becomes clear when we look at the daily volume of average trading.

Cryptocurrency derivatives trading hit its highest 2020 trading volumes on Tuesday, while Bitcoin jumped by 9% and Ether by 16%, per Skew compiled data.

Approximately $25 billion exchanged hands for Bitcoin futures contracts during the single day, making Jan. 14 the busiest day since Oct. 26. Meanwhile, open interest on bitcoin futures has grown by 16 per cent to $3.5 billion, with OKEx and BitMEX cryptocurrency exchanges seeing the highest amounts.

Greater volume of trading is a sign of strong liquidity which is always beneficial for market participants, and hence opens up a new arena for the crypto-minded people – development of a crypto derivative trading software to facilitate seamless trading in the derivatives market.

Let’s try to understand the world of cryptocurrency derivatives before we move on.

A derivative is basically a financial contract between two or more parties, deriving its value (thus’ derivatives’) from an underlying asset, in this case cryptocurrencies. Very specifically, buying or selling a specific asset at a fixed price and a specified time in the future–be it stocks or cryptocurrencies-is an agreement.

Derivatives do not have their own intrinsic or direct value; the value of a derivative contract is based purely on the underlying cryptocurrency’s expected future price moves on a derivatives trading platform.

It is easy to see that a vibrant financial environment needs the derivatives market and maybe this is the bridge needed to increase the visibility of cryptocurrencies to the mass market. Given their scope and depth, however, caution must be exercised when dealing with derivatives.