Are Crypto Futures the Future of Crypto?


The cryptocurrency trading landscape is very different now than it was even a year ago. Around this time last year, optimistic analysts were predicting that the bear market that had begun to drag on for an uncomfortably long amount of time would soon end and that the happy days of BTC “to the moon” would soon return.

Now, a year later, the bear market has continued to drag on and on…and on. Because it’s become so much more difficult for cryptocurrency traders to profit it off of trading assets directly, many have looked toward other methods of earning cash off of crypto.

Discover Barcelona Trading Conference – A Top Tier Crypto Trading Event

One of the most popular methods of attempting to profit in the bear market is cryptocurrency futures trading. However, concerns of market manipulation still plague the crypto futures space. Is this a valid concern?

What is Cryptocurrency Futures Trading?

“Futures markets are a vehicle for hedging and speculating on the price of an underlying instrument without needing to own that underlying asset,” explained Adam Todd, founder and CEO of Digitex Futures, in an email to Finance Magnates. “This means traders can bet on whether the price of something will rise or fall without needing to buy or sell the physical thing on which they are trading.”

“Using Bitcoin futures as an example, instead of buying and selling physical Bitcoins, traders are buying and selling promises to buy or sell Bitcoins in the future.”

Todd explained that futures trading could affect the price of Bitcoin “if the volume of futures contracts being traded is large enough. This is because traders who build up large exposure in the futures markets may have to hedge their risk by buying or selling physical Bitcoins.”

“Due to high leverage trading, this can trigger very large buy or sell orders in the physical market which can have knock on effects to physical prices,” he added.

Leverage trading allows investors to open positions that are higher than the balance of their accounts “Leverage is a very powerful tool because it can amplify your gains, but it’s also dangerous because it can amplify your losses as well, and even wipe out your account if you aren’t careful,” explained a post from crypto exchange Kraken.

It sounds a lot like gambling–and, in a way, it is. However, the futures trading market has grown into an industry worth many trillions of dollars. The primary reason for this is institutional involvement in the futures markets–futures trading is exactly the kind of gambling that banks and other large financial institutions can legally be involved with.

Indeed, because “Bitcoin futures on CME or CBOE cash-settled markets allow traders to speculate on the future price of bitcoin without handling underlying assets, further allowing traders to buy and sell BTC without actually owning any…This distinction means crypto future markets are often characterised as ‘casinos’ because traders are capable of making larger gambles and bets, exaggerating potential gains or losses,” explained Aditya Das, Analyst for Brave New Coin, to Finance Magnates.



However, cryptocurrency futures in particular also forged a pathway for banks and institutional investors to get involved in the cryptosphere. While these investors may have been too risk-averse to buy and trade cryptocurrencies directly, crypto futures contracts presented an option that was a but more friendly and familiar to the traditional financial world.

Crypto Futures Alarmed Traditional Financiers

Still, for many institutional investors, futures contracts were not nearly enough. Fear of market manipulation has kept a great deal of financial institutions and investors away from the cryptocurrency futures markets. Before the first-ever crypto futures options were made available on CBOE and CME, panic spread throughout Wall Street and other parts of the financial sector.

In fact, Thomas Peterffy, CEO of major brokerage firm Interactive Brokers, published a full-page letter in the Wall Street Journal describing his concerns that opening up a cryptocurrency futures market could trigger a financial crisis similar to the recession that took place in 2008.

As an increasing number of platforms and trading options become available, Kravchenko said that the influx of retail investors, as well as regulated exchanges, could lead to “cross-breeding” and greater market participation across the board.

Indeed, at the moment, “CBOE futures market has high portion of institutional investors while cryptocurrency exchanges are overflowed with retails investors,” Kravchenko said. “This is going to change as cryptocurrency exchanges will mature and provide products that are unavailable on traditional exchanges, so institutional flow will move to professional and licensed cryptocurrency exchanges for juicy profits.”

Leave a Reply

Your email address will not be published. Required fields are marked *

You May Also Like