The end of 2017 saw the top in the bitcoin market tied to the emergence of cash-settled Bitcoin futures. Since then, the cryptocurrency market has continued to be as unpredictable as before and extreme volatility at times was quite present. This year, the market is widely looking at physical delivery of the underlying instrument.
While the CME and the CBOE, who have been traditional venues of trading futures, pioneered a contract, the cryptocurrency industry itself is set to compete with the InterContinental Exchange (ICE) to deliver the very necessary physically-settled bitcoin futures contract.
In all likelihood, the first major exchange to deliver physically-settled crypto futures will be ICE, but the estimated potential size of the market is likely to drive more companies into this space.
Last August, the co-founder of UK crypto exchange Coinfloor, Mark Lamb, spoke to Finance Magnates and shared some details about the company’s product. The firm also announced a partnership with software developer company Trading Technologies, to implement a solution against market manipulation.
A new company that was spun off from Coinfloor called Coin Futures and Lending Exchange (CoinFLEX) is well on its way to provide physical settlement cryptocurrency futures to Asian retail investors. The consolidation phase in the cryptocurrency intermediary industry yields a new drive among crypto-enthusiasts to create the next big thing for the development of the new market.
Asian Retail Crypto Market
CoinFLEX is based in Hong Kong and is owned by several famous market players. Aside from Roger Ver and Trading Technologies International Inc., Coinfloor UK also retains a stake in the venture.
In contrast to the conservative policies which major exchanges have applied, CoinFLEX will provide up to 20 times leverage to its clients. The exchange will be offering Bitcoin, Bitcoin Cash, and Ethereum contracts.
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The venue will be delivering to its clients physical cryptocurrency at the settlement date.
Coupled with Hong Kong-based exchange BitMEX, which is already offering high-leverage trading to its clients, CoinFLEX responds to increasing risk-appetite in the loosely regulated retail crypto trading industry.
Clients in Asia, have been particularly keen to make levered bets across forex, commodities, CFDs and now cryptocurrency markets. The natural evolution of the industry is to respond to this demand and accommodate the needs of a big number of traders from the region.
Crypto Derivatives Markets Development
The huge interest in trading derivatives contracts on commodities back in the 80s drove the emergence of a massive industry which until this day has not subsided. The global financial derivatives market has grown exponentially until 2008 when the Great Financial Crisis left a dent into its size.
That said, the loosely regulated cryptocurrency market is likely to attract more investors as the value of major cryptocurrencies stabilizes. The latest bout of volatility in cryptocurrencies yielded a fragile market, but the rebound of Bitcoin above $3,500 and its recent flirt with the $4,000 level could prove attractive for crypto-enthusiasts.
If traditional markets offer any clues to the development of the crypto derivatives market, the trading volumes in this industry could easily increase dramatically.
Lamb shared in an interview with Bloomberg that the traditional ratio of derivatives markets volumes to traditional markets is 20:1. The size of the futures market in cryptos is around $3 billion, which is on par with exchange-traded futures volumes, he emphasized.
The latest $US value of exchange-traded futures daily averages according to the Bank of International Settlements totaled to around $6.6 trillion. Meanwhile, the total market capitalization of the physical cryptocurrency markets declined by about $700 billion since the introduction of the futures contracts by the CBOE and the CME.