Several stakeholders in the crypto markets are saying bitcoin derivatives could become an even bigger deal than the underlying asset. In 2019 alone, there has been a slew of announcements pertaining to bitcoin and crypto futures.
What is more, custodial solutions offered by trusted establishments are also becoming a firm fixture in the evolving cryptocurrency scene. This trend could even consolidation the pedigree of digital tokens as a mature asset class moving forward.
Bitcoin Derivatives Market Set for Massive Growth
For CoinFLEX CEO Mark Lamb and B2C2 chief Phillip Gillespie, there are indications that the bitcoin and crypto derivatives market is set for a massive surge in growth. This significant increase may even be several orders of magnitude larger than the crypto spot market.
As previously reported by DemandSolutionNews, the likes of ErisX have made significant strides in the crypto derivatives arena. In July, the Chicago-based crypto futures exchange successfully obtained a derivatives clearing organization (DCO) license in July.
“More and more hedge funds and more and more financial experts realize that there is an opportunity in this space. That means more volume going through the derivatives exchanges, and more liquidity coming into the overall ecosystem. So, it is an interesting feedback loop.”
With the New York Department of Financial Services (NYDFS) announcing plans to create a licensing division specifically for crypto-related businesses, more derivative platforms might join the spring up and join the market.
This growth will, however, need to move in tandem with improving regulatory compliance. Bodies like the Financial Action Task Force (FATF) are increasingly demanding more robust governance of cryptocurrencies.
The U.S. Commodity Futures Trading Commission (CFTC) is even reportedly looking into BitMEX on suspicion of servicing American traders. This news came even as BitMEX CEO Arthur Hayes and popular crypto basher Nouriel Roubini were having their post “Tangle in Taipei” standoff.
Crypto Derivatives a Likely Onramp for Institutional BTC Adoption
Derivatives trading requires a fair bit of regulatory compliance which provides more cover for investors. This reality could, in theory, make cryptos a more appealing proposition to institutional investors.
Bakkt, the bitcoin futures trading platform owned by Intercontinental Exchange (ICE) plans to go live later in the year, pending regulatory approval. More mainstream establishments offering bitcoin derivatives could serve as an onramp for big money players to invest in crypto.
Given the size of the investment purses of these institutional actors, the bitcoin derivatives market could outstrip the underlying asset by a fair margin. Lamb of CoinFLEX believes the crypto derivatives market can outgrow the crypto spot market by as much as 20 times before the end of 2020.
Crypto commentators like Barry Silbert of Digital Currency Group believe that the incoming generational wealth transfer could see more inflows into bitcoin rather than gold. BTC bull Max Keiser also makes a similar case. A significant part of this expected inflow might be directed towards crypto derivatives.
This expected massive increase in the size of the crypto derivatives market also helps to further strengthen the belief that the underlying asset is a more mature asset class. In 2019, bitcoin has staged a significant recovery from the losses suffered during the 2018 bear market.
Since the start of the 2019 bull rally, the consensus has been that retail wasn’t the prime driver for the price recovery. In 2017, however, the initial coin offering (ICO) mania helped fuel crypto prices to all-time highs.