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Crypto Derivatives Could Be Game Changer For Investors...But Not Yet

By (Tanzeel Akhtar/ 12, 2018 07:30AM ET
Crypto Derivatives Could Be Game Changer For Investors...But Not Yet
By (Tanzeel Akhtar/   |  Jul 12, 2018 07:30AM ET
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Executives at CBOE Global Markets, which in December launched trading in Bitcoin futures contracts, aren't resting on their laurels. According to an SEC release dated the end of June, the group has applied to next introduce a Bitcoin ETF.

The Chicago Board Options Exchange clearly sees the potential in cryptocurrency derivatives. Executives have also discussed initiating trade in Ether futures contracts, the crypto token of the Ethereum network. However, no specific product or launch schedule has been set for the US, though regulated futures trading for Ethereum is already live in the UK via Crypto Facilities.

But the CBOE is hardly the only financial organization looking for ways to maximize avenues for cryptocurrency trading. At the end of June, David Solomon, COO of Goldman Sachs confirmed the US investment bank was already working with clients interested in BTC futures trading and was considering some other activities related to the asset class, "but it’s going very cautiously,” he said. Goldman Sachs has to “evolve its business and adapt to the environment,” Solomon further noted.

CBOE BTC Futures Weekly
CBOE BTC Futures Weekly

Though Bitcoin futures markets have obviously followed token pricing lower, since both the CBOE and CME Bitcoin futures contracts went live, many believe these derivatives have had a hand in pushing the adaption of digital assets forward. In their view, Bitcoin futures trading has given serious legitimacy to the asset class.

Mati Greenspan, senior analyst at eToro believes this is an exciting development for Wall Street traders since crypto assets have a relatively low correlation with the rest of the financial markets. As such, they could be an excellent hedge against systemic risk. However, though the Bitcoin futures contracts are an excellent start, in order to see another surge like the one seen in Q4 2017, there still needs to be a wider array of cryptocurrency derivative products.

Dr. Omri Ross, CEO of Firmo views derivatives as a cornerstone of the traditional financial economy. A natural next step will be the inclusion of additional standardized derivatives, such as futures, options, and various swaps that are partly or fully decentralized and tokenized, he says.

“These instruments have the potential to bring more liquidity to the crypto economy, opening the market up for new asset classes, and bringing more stability to the volatile crypto markets….”

Bitcoin futures are traded at notional outstanding volumes of around 10x the world’s global GDP, he adds. As such these instruments exercise a significant impact on the global economy. "Right now, we are seeing a general push towards ETFs in crypto assets and centralized futures," notes Ross. "We have already seen futures on CME, CBOE and the NYSE Bitcoin Index, and we expect the same to happen with Ethereum and potentially other crypto assets."

Still a Risky Business; Derivatives Too Volatile?

As the US moves forward post the launch of Bitcoin futures, the European Securities and Markets Authority (ESMA) and UK finance watchdog Financial Conduct Authority (FCA) have each shared their concerns about the asset class, both taking a tougher stance on cryptocurrency derivative contracts.

However, says Rohit Kulkarni, managing director, private investment research at SharesPost, much needed regulatory oversight on the crypto ecosystem is slowly taking shape, particularly in jurisdictions outside the US.

“A constructive approach by regulators, coupled with better understanding of the cryptocurrencies and blockchain technology, will help unlock institutional appetite from both the buy-side and the sell-side. While speculators might attribute the ongoing crypto bear market to the launch of derivatives trading in December last year, we view CBOE’s signaling as a sign of forward progress.”

Derivatives will be on the periphery of the crypto sphere for some time, says Bill Barden, the COO of Enosi. That's because, "both volatility and outright size of movements will make selling naked volatility way too risky and buying volatility way too costly. The only ones who could benefit are the long-term holders who can sell covered calls, but [I'm] just not too sure who would buy unless [these were] sold cheaply."

Nick Cowan, CEO of the Gibraltar Blockchain Exchange adds that crypto derivatives are yet another step in the institutionalization of the space. It's his view that they're a necessary development to help with price transparency and liquidity, while also building needed functions such as hedging and arbitrage, both of which are fundamental if traditional financial players are to enter the crypto space.

Perhaps most significant for both retail and institutional investors, crypto derivatives are strictly regulated. Gianluca Giancola, co-founder and head of UX and design at blockchain-powered loyalty ecosystem qiibee, points out that the derivatives are more tightly regulated than cryptocurrencies themselves. This should help decrease volatility as the market matures, pushing digital currency investment forward.

And as the crypto economy matures, says Dor Eligula Dor Eligula, founder of, the masses will come.

“I believe that as more and more tools and instruments will be created on top of the crypto market - the more interest and adoption will come. As the mass crowd will get more and more reasonable tools, so it's [all] more familiar - they'll be more likely to step into crypto.”

Crypto Derivatives Could Be Game Changer For Investors...But Not Yet

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Crypto Derivatives Could Be Game Changer For Investors...But Not Yet

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