- A maturing cryptocurrency industry may need derivatives to develop further.
- Being able to hedge against risks via advanced tools may moderate volatility.
- Mainstream investors may use derivatives as a gateway to trading cryptos.
Bitcoin is over ten years old, and the cryptocurrency market has seen its share of booms and busts. But has it matured? One step forward, intensively debated in the Delta Summit, is derivatives. FXStreet’s Tòmas Salles is in Malta and reports that futures, swaps, and options are high on the agenda for OKEx, a prominent crypto exchange based on the Mediterranean island nation.
Lennix Lai, Financial Market Director with OKEx, explains that with these advanced tools, investors may be able to hedge against risky positions, thus limiting their risks. Financial instruments such as short options may attract more mainstream investors that have so far shied away from entering the world of digital coins.
Derivatives may start with Bitcoin, which is growing in dominance. Moreover, Altcoins may face massive consolidation and perhaps an outright cull.
As a result of such hedging options and the potential increase in liquidity, volatility may decrease. Some cryptocurrencies experience wild moves in prices due to low liquidity and big players creating big waves in prices. Protection against moves triggered by these “whales” could stabilize price action.
In turn, limited price action may deter risk-takers from entering crypto markets. However, it may draw others who may come to see investment in the new technology as any other asset class. It is also essential to note that trading digital coins directly requires some technical knowledge, which also isolates this world from mass markets. While trading derivatives is not as well-known as trading stocks directly, it is far more common and may also be attractive to those who are already involved in futures, options, and swaps.
Eventually, with additional funds flowing to the crypto-sphere, prices may also increase, but that may take some time. In any case, watch this space.