Some enthusiasts believe that the introduction of derivatives will help stabilize the market and ensure better execution of orders, thereby civilizing the nature of trade. They are certain that derivatives will bring liquidity to the market and increase the volume of trade.
At the same time, others blame derivatives for excessive volatility and do not believe that they are a sufficiently developed tool to attract institutional investors.
There are many questions that remain unanswered, such as how the derivatives industry can develop in the cryptocurrency sector and whether derivatives are capable of minimizing volatility in the market. We interviewed the representatives of four leading cryptocurrency exchanges that support derivative contracts, and they shared their views on the trends developing in 2019.
Derivatives Are Likely to Grow in Share Relative to Spot-trading Volume in 2019
The number of exchanges that support derivative contracts is sure to grow. Most of the representatives of the leading exchanges we interviewed are optimistic about the development of the industry.
Anton Kravchenko, CEO of Xena Exchange, said:
“The advantage of the derivative contract market compared to the spot one is that the derivatives are mostly a leveraged instrument.
The opportunity to trade with up to 100x leverage on leading exchanges results in the influx of professional traders on the market who want to get exposed to the price risks only. Traders seek higher returns, and we develop the solutions — it’s as simple as that.”
Andrey Grachev, board member of Huobi Russia, agrees with Kravchenko’s statement.
“I believe that derivatives in 2019 will exceed spot trading in terms of trading volume. Most likely, we will see the rise of many derivatives exchanges, just like we’re seeing with spot-trading exchanges. At the same time, the main volumes are being consolidated among the top five players.”
BitMEX Research expressed their point of view on the matter as well:
“The derivatives markets is likely to develop further in 2019, with more instruments becoming available for alternative coins such as Ethereum and Ripple on large platforms such as BitMEX. At the same time, derivatives platforms may be able to offer more professional services than crypto spot exchanges, such as better execution, more robust API access, and lower fees.”
Derivatives Will Not Remove Volatility
BitMEX Research believes that derivatives are not the ultimate solution to volatility. “In theory, the existence of derivatives can reduce volatility to a lower equilibrium level, but they will not completely remove volatility. Right now, we’re still at a stage where volatility is one of the most attractive characteristics of the space, so it would be a shame if the volatility was eliminated,” they say.
Andrey Grachev of Huobi Russia is confident that the cryptocurrency market is interesting precisely thanks to its volatility and that derivatives are an excellent tool for hedging risks:
“The arrival of professional traders signifies the arrival of strategies in which derivatives are used as a hedging tool, and the main task is the optimization of the speed of algorithms. Over time, when the market capitalization rises to the level of traditional markets, the volatility will also decrease to the level of traditional markets. But I do not expect the rapid development of such events.”
Pablo Magro, business development director at OKCoin, believes that derivatives exist to reduce risk exposure and to protect asset holders from fluctuating prices:
“Arguments are made that derivative instruments will help rid the market of volatility; however, we believe that these arguments are still debatable. In other words, it’s still too soon to say whether derivative instruments will help rid the market of volatility.”
The Bear Market Is a Great Opportunity for Growth and Reorientation
Pablo Magro from OKCoin believes that the derivative contract market will be taken over by advanced innovative companies that will provide decent competition. “We are extremely bullish on the long-term opportunities of the potential of blockchain and cryptocurrency to disrupt financial markets, and we believe that the market will make great strides towards this potential throughout 2019,” he says.
Anton Kravchenko from Xena Exchange believes that the most competitive exchanges that support derivative contracts will be the ones that can provide users with more trading tools.
“There are dozens of different strategies that traders can adopt on traditional markets. The availability of the tools necessary for the implementation of these strategies on the crypto market is one of the key elements for ensuring its development. The company that manages to provide a broader scope of instruments first will become the leading name on the market.”
The beginning of March 2019 will see the arrival of many cryptocurrency exchanges that allow trading in derivative instruments. Leading cryptocurrency exchanges will be among the ones heading the trend. This factor alone increases the chances of attracting large international funds.
There is definitely room for the emergence of an investment ecosystem climate on the derivatives market. It’s only a matter of time until we see whether the derivatives market will be able to beat out the spot market.
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