The growth of the cryptocurrency markets attracted the eyes of many day traders who are now asking themselves how big are cryptocurrency derivative markets? This article will first explain what is crypto derivative before detailing the growth and size of crypto derivatives.
What are cryptocurrency derivatives?
Cryptocurrencies derivatives refer to the buying or selling of futures, options, or perpetual contracts. Crypto derivatives work much in the same way as they do in traditional finance as in they use margin trading. Derivatives products offer leveraged products who can profit from both a rise and fall in price depending on the direction chosen for the contract.
Derivatives allow traders to use leverage and only pay a small margin to open a much larger position. They work by borrowing funds from the broker/exchange to do so. They work by letting traders choose either a short or long position to enter a trade. Short positions sell the coin at the current price and buy it back at a later date; thus, profiting from a drop in price. While long positions buy the coin now and sell it back at a later date; thus, profiting from a rise in price.
The major exchanges currently offering crypto derivative products are Bybit, BitMEX, Deribit, and Huobi with futures, options and perpetual for BTC and ETH making most of the market. Perpetual contracts are a new form of derivatives that work much in the same way futures do but have no expiry date.
While risky derivatives are a favorite of day traders for the increased profiting possibilities they offer.
How big are cryptocurrency derivative markets?
The cryptocurrency derivative markets as of Q1 2019 represent about $2.5 Trillion which is slightly over half the $4.5 Trillion of the coin-to-coin and fiat-to-coin markets. A significant achievement for such a recent market, and one that is likely to continue growing as many exchanges have reported having a user growth of +30% per quarter.
Another important thing to note is that in traditional finance the derivative markets are 17* larger than normal equity markets. Should this trend hold true, the crypto derivatives market could be expected to grow 38 times larger than they are right now with the same crypto markets and could grow even more should the traditional crypto markets also grow by 50% as is expected in 2019.
The cryptocurrency derivative markets, thus, already represent a very large portion of the cryptocurrency market and are set to become even bigger in the future. They, as such, represent a golden opportunity for those early enough to catch on quickly.
This concludes today’s article about what are crypto derivatives and how big are crypto derivative markets. We hope you learned a lot, enjoyed the read and stay tuned for more great content.