Like any emerging industry, the cryptocurrency market is undergoing major changes in many areas. The possibility continues to grow every year – from the arrival of initial currency offers, the first blockchain-based projects and Bitcoin price speculation (BTC) to decentralized central finance and central bank digital currencies.
Hot topics are never over on Crypto. Now, by 2020, the crypto assets domain is no longer considered another “dot com” bubble. The topic is gaining popularity all over the world, and since COVID-19 simplified digital assets and encryption popularity, block recognition is just a few steps away. Playing in the derivatives market can be very complicated for major users, but this is one of the currently common areas that should not be overlooked.
Uses opportunities in the reality of the cryptocurrency
Along with the growing interest from the public and institutions, trading volume on global crypto platforms has increased steadily over the past few years, and the range of trading products that also support the crypto industry's march in the future has increased.
Derivatives are an integral part of any market development cycle, and one of the main factors in the cryptocurrency is the trading of derivatives. In today's world, where Bitcoin is widely known by large institutional investors, and every third global company that buys cryptocurrency, the monthly turnover has reached hundreds of billions of dollars.
Major crypto derivatives include futures, options, and exchanges, which are mostly offered against the largest assets, Bitcoin. Trading cryptocurrency derivatives is common in the crypto environment, as it provides an opportunity to manage risk and leverage effectively to maximize profits simultaneously.
With the global outbreak of the COVID-19 pandemic and economic systems recovering from the shock, the cryptocurrency derivatives market began to grow dramatically, reaching a record $ 600 billion in March. In line with recent CryptoCompare reports, cryptocurrency derivatives that trade with permanent exchanges and futures contracts reached another record high of $ 602 billion in May.
So what is the reason for this big increase in the trading of crypto derivatives in recent months? Nothing extraordinary – this is normal. Let's compare the bond market and the stock market. In the stock market, you can get higher returns with greater risk than the bond market. The current economic crisis has made it difficult to find relevant trends that will allow us to get higher returns, as most trends are clearly related to the changes caused by COVID-19. Although the cryptocurrency market is still a somewhat wild and very unstable west despite its growing maturity, many are only looking for a way to increase their activity with derivatives to increase profitability. Over time, the economy will start to recover, but then the balance may change again and the demand for cryptocurrency derivatives may decrease. The volume will remain large, but the growth will slow.
Disadvantages of the Crypto Derivatives Market
The emergence of the crypto market product came unexpectedly, so the infrastructure, “know your customer” and money laundering methodologies in most countries were not ready to “accommodate” the new model under which these new assets were operating. Simply put, the principles of transferring values from one owner to another in the cryptocurrency are fundamentally different from those of the basic paper money.
Second, the functions associated with issuing and managing assets, such as bitcoins and other encrypted codes, made it difficult to identify and assign responsibilities between issuers, which are absent in some cases, and code holders. Depending on the stability of the financial system, a cryptocurrency character creates risks, financial problems, and other risks for each type of organization. The void in solving these problems is filled in various ways.
When we talk about the nature of cryptocurrency derivatives, the main types on the market today are CFDs or CFDs. Switch to difference or EFD; Bitcoin futures. In the first two cases, this is a function of the value of the coding origin, but it is specified in financial instruments that already have regulations everywhere. This often makes a tangible contribution to its development, because when using derivatives derived from financial market participants, the logic of current KYC / AML procedures does not violate and the launch of the cryptocurrency is not achieved.
Thus, the logic remains in the regulatory processes, despite the very close financial goals of using derivative financial instruments from market participants.