2019 was marked by an explosive growth of the cryptocurrency derivatives market. The number of derivatives and their trading volumes have increased significantly.
According to data from the analytical service CryptoRank.io, the total daily volume of bitcoin futures trading on major exchanges regularly exceeds $ 35 billion.
By the end of 2019, the daily volume of spot trading for bitcoin is repeatedly losing to the volume of traded futures contracts.
Brief overview of the bitcoin futures trading market
Monitoring and Analytics service CryptoRank.io, shows that the daily trading volume of bitcoin futures is more than 4 times the volume of the spot market.
The chart above shows that the daily volume of futures trading is more than $ 16 billion, while the volume of spot transactions is less than $ 4 billion (adjusted real volume on the 100 largest exchanges is taken into account).
Only four exchanges — Huobi, OKEx, Binance and BitMEX-provide almost 80% of the daily trading volume of bitcoin futures.
The ratio of the volume of futures and spot markets on the main exchanges that offer both types of transactions can be seen in the chart below.
As you can see from the charts, the volume of futures transactions on all exchanges repeatedly prevails over spot ones.
Why is the volume of futures transactions with bitcoin higher than spot transactions?
A futures contract is an agreement to buy or sell an asset on a specific date (expiration date) at a specific price (the actual purchase price of the contract). This is a derivative instrument, and its price depends on the price of the underlying asset — bitcoin. Each futures transaction needs a buyer and a seller of a contract with the same volume and maturity.
When selling a futures contract, the seller postpones the settlement of it in time. In spot trading, the settlement occurs at the same time as the transaction. It is important to note that futures trading takes place in a separate order book.
There are several likely reasons that are behind the predominance of the volume of futures transactions.
Miners resort to using futures, hedging future earnings and reducing the uncertainty of cash flows. Institutional traders also often resort to this method: bitcoin buyer’s positions are hedged by a short on a futures contract, and Vice versa — short positions on bitcoin are hedged by long ones on a futures contract.
The ability to play for a lower price
During the rapid fall of bitcoin, spot trading participants tend to quickly get into stablecoins, without being able to directly earn on the fall. Futures trading provides a solution for making a profit — playing on the downside by opening short positions.
Using a smaller Deposit size
Futures transactions offer partial collateral when opening a position. For a trader, this makes it possible to reduce the actual volume of entry into the transaction. Moreover, in contrast to traditional futures markets for goods and shares, where the collateral for the contract is usually in the range of 10-20% of the corresponding value of the underlying asset, the leverage for cryptocurrency derivatives reaches 100x or higher.
Despite the crashes and UPS that occur with bitcoin, such as on March 12-13 (the price of the first cryptocurrency fell from $ 8,000 to $ 3,800), speculative traders note the lack of daily volatility. This circumstance prompted them to trade futures with a huge leverage, up to 100x on BitMEX and 125X on Huobi.
The opening of the new futures sites
The active development of bitcoin futures trading was due to the launch of derivatives platforms. So, in 2019, the start of futures trading was given by already existing spot exchanges, including Huobi Global, OKEx, Binance, BitMax and BiKi. In addition, in 2019-2020, new players came to the cryptocurrency derivatives market — FTX, Deribit, Bybit, Phemex and others.