2020, though it was predominantly characterized by the pandemic, was a vital year for the cryptocurrency derivatives market. Cryptocurrency derivatives, like Bitcoin futures, were particularly alluring, on offer by crypto derivatives exchanges across the world, like Delta.
To put this in perspective, as the year 2020 ended (31st of December no less), Bitcoin options open interest saw an ATH of $6.8 billion, tripling the open interest from no less than a hundred days before, according to skew.com. Over the course of 2020, the question went from “what is a cryptocurrency derivative?” to “How can I trade in crypto derivatives?” ,“what is bitcoin options trading?” and even the broader “what is crypto options trading?”.
Well, 2021 is going to be bigger. Here’s why.
1. Increase in Popularity of Cryptocurrencies
Moving into 2021, the popularity of cryptocurrencies have only gained more steam, as evidenced by the fact that Ethereum reached a new ATH of $1600 on February 2021. Popular figures like Elon Musk, Russel Okung, and many others publicly endorsed cryptocurrencies, further stimulating the cryptocurrency market. Coupled with the weakening global economies, alongside crypto being a natural hedge, has seen a massive surge in the demand. To quote the CEO of SpaceX, “In retrospect, it was inevitable”.
With a massive bullish run, there is a massive demand for speculatory and hedging tools. These tools are best used for cryptocurrency derivatives, and by extension, on cryptocurrency derivative exchanges.
2. Volatility Is Not Going Anywhere, yet.
Without a doubt, most cryptocurrencies are extremely volatile as of now. While a degree of stability is something that needs to be achieved by cryptocurrencies in the long term, people need to account for the volatility in the present scenario. For instance, Bitcoin has dropped 10% over a period of 2 days – 8th to 10th of January, 2021 – from approx $40000 to 36000, reaching a low of 34000 at 12th and rising upto $39000 over the next two. This continued throughout the month of January, with prices plummeting to $30000 (27th of January) and is now being traded around $55000 mark in March.
Investors need to look for hedging instruments while the volatility can be taken advantage of by intelligent speculators. Cryptocurrency derivatives like options, futures, and swaps are the best solutions catering to both these needs, further fuelling the demand for crypto derivatives.
3. Off to a Great Start
As the popular saying goes – “well begun is half done”. The same is the case for crypto derivatives. Though 2021 has only just begun, records have already been broken. We’ve spoken about how big the year 2020 was, but with a little over 29 days in 2021, new records were made, as a breathtaking $3.7 billion worth (101,000) of Bitcoin options expired on January 29.
Without context, this might seem like an arbitrary number to the casual reader, so allow us to put it in context. Compared to the previous all-time high, of $2.4 billion as seen on Christmas 2020 (A little over a month ago), this is a whopping 150% increase. With data showing that the trend is all set to continue, Crypto Derivatives is on for one amazing year.
2020 saw the most popular cryptocurrency, Bitcoin, get its own financial derivative product launched by the CME Group, the world’s largest mainstream derivatives exchange. Ethereum is set to follow suit, as an ETH derivative product is announced for February of 2021, and will be regulated by The CFTC. This, coupled with the fact that Ethereum holders are riding on the best rally of Ethereum’s lifetime is extremely beneficial to the cryptocurrency derivatives markets.
5. Institutional Support
If you are a crypto skeptic or, if you’re genuinely wondering what’s the difference between the 2017 bull run and the present scenario – the answer is simple. Institutional support and adoption. The 2017 run was driven by individual investors and whales, as opposed to the current situation, with institutional investors powering through, along with individuals and whales.
To quote one such example, MassMutual, global insurance leaders, have invested over $100 million in Bitcoin, while MicroStrategy invested over $750 million according to reports. Even the US government is reportedly in on the action, which owned 69,420 BTC (approximately $2.6 Billion) as of 21st December according to the reports. Of course, this is not mentioning the massive $12 billion invested by the Greyscale Bitcoin trust, and by this point, you get the drift.
With rapid developments in the DeFi space, and the wide variety of use cases on offer, the crypto derivatives market is set to be in the spotlight, even more than before. We, at Delta.Exchange, say with confidence that, 2021 will be the year of Crypto Derivatives.