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A Brief Look Inside the Cryptocurrency Derivatives Market

A Brief Look Inside the Cryptocurrency Derivatives Market

While cryptocurrency prices have remained quite steady within the last couple of months, the market is evolving at a relatively rapid pace. In fact, numerous analysts believe that the rising popularity of cryptocurrency derivatives, alongside the variety of compelling crypto and blockchain-based projects are bound to further encourage innovation, drive mass-adoption, and lead to long-term price hikes.

An introduction to crypto derivatives

This specific market sector is still fairly new, yet it has attracted billions of dollars’ worth of investment capital, alongside considerable attention from large-scale investors. Despite this, the derivatives market is still a mystery to most casual users, due to its complexity.

Briefly, derivatives represent financial contracts signed between at least two parties, which are used for the purpose of speculating the future price of an underlying asset. This financial instrument has been used extensively within the traditional financial market, while it has only been introduced to crypto over the last few years.

Understanding crypto derivatives

At this point in time, there are three main categories of cryptocurrency derivatives that investors can leverage: futures, perpetuals, and options. While bitcoin is the most popular asset that these contracts are based on, more and more exchanges are expanding their cryptocurrency derivatives support.

This instrument is mostly speculative, as it allows investors to earn capital while predicting future price evolutions. Since derivatives entail ‘contracts’, most small-scale individual traders and crypto owners have strayed away from this specific instrument. On the other hand, large-scale investors (including institutions), have been earning considerable profit from price speculation. At this time, numerous companies are working on creating derivatives trading solutions that appeal to the masses, for the purpose of encouraging mass-use of these instruments.

So far, the cryptocurrency market has taught us that considerable trading volumes do, in fact, fuel prices, while raising awareness amongst the general population. Indeed, several of the most popular digital currencies are primarily meant to replace fiat currencies, and this can only happen through actual usage of coins when buying and selling products and services. However, it seems that crypto usage through trading and investments can represent an alternative path towards improving worldwide adoption. To put this into perspective, at press time, the aggregated 24H trading volume for derivatives is situated at $10.66B.

Future price and volume predictions

The volume mention above is fairly low when compared to some of the past records witnessed by the market. The lower volume is mostly caused by the Covid19 economic crisis, which has actively slowed down investments. Most market analysts believe that much higher volumes will be attracted within the next couple of months. Signals are also pointing towards significant crypto price increases. For instance, from a medium-term perspective, some analysts such as the ones from the Crypto Research Report, believe that Bitcoin will reach $397K in value by 2030.

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