At the date of publication, Brenden Rearick did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publishing Guidelines.
Cryptoderivatives are getting bigger than ever
Source: WHYFRAME/ShutterStock.com
Even with all its downward volatility and regulatory uncertainty, there is still an allure to crypto investing. It essentially bridges the gap between stock trading on Wall Street and placing all your chips on black at the roulette wheel. Clearly, this type of unpredictable price action does not appeal to risk-intolerant investors. So how can the market hope to accommodate them? The answer: crypto derivatives.
Cryptoderivatives, just like all other derivatives, allow one to invest in an asset without actually owning it. This enables investors to limit their exposure to crypto volatility. It is an appealing middle ground between full ownership and complete abstinence from the market. Investors have many options for how to trade these derivatives as well. Futures contracts, options and perpetual contracts provide a tailored investment experience.
Companies have pushed hard for various derivative products in the past. The ProShares Bitcoin Strategy ETF (NYSEARCA:BITO), the first Bitcoin (BTC-USD) futures contracts for Wall Street investors, did not arrive until October 2021. Since then, a handful of other crypto derivatives have emerged, including Coinbase’s (NASDAQ:COIN) derivatives exchange and FTXs crypto options and futures products.
Of course, these products are still few and far between. Getting regulators on board with new exchange-traded funds (ETFs) and other ways to invest in crypto derivatives is like pulling teeth. So much is made clear by Grayscale lawsuit against the US Securities and Exchange Commission (SEC), which it filed after being denied a spot Bitcoin ETF for several years. However, investors will be happy to hear that a renaissance is on the way. That is, according to a leading crypto executive.
Crypto derivatives have a bright future, according to Sam Bankman-Fried
Investors aren’t the only ones positive about crypto derivatives. Leaders also keep their ears to the street to know exactly what people want. In particular, FTX founder and CEO Sam Bankman-Fried is keen to expand traders’ options when it comes to crypto.
Bankman-Fried last spoke about the derivatives market at a Decrypt podcast. The executive says FTX’s derivatives products take up the vast majority of his attention. “It’s been the single biggest request from our customers for as long as I can remember,” he claims.
FTX actually began as a derivatives platform before becoming an ecosystem for crypto, non-fungible token (NFT) and DeFi investments. Still, these comments may surprise some. FTX has been on an aggressive rescue campaign in the wake of the market crash; its priorities (in terms of news) seem to be in other corners of the market. So the fact that Bankman-Fried is still largely focused on derivatives speaks to the overwhelming – and still growing – demand in that sector.
Proof of these claims is news of a new crypto derivative product being introduced by CME Group (NASDAQ:CME) in September. The company already has a Bitcoin options product. Now CME is releasing one Ethereum (ETH-USD) futures product as well. The rollout of this new product will come days before ETH’s long-awaited Merge upgrade. CME says this decision comes after seeing a massive uptick in volume across Ethereum’s “micro-sized” options product.
