The Rising Popularity of Crypto Derivatives: Why Clear Data is Key

The cryptocurrency derivatives market is one that’s seemingly growing faster than any other. After the CME and CBOE introduced bitcoin futures contracts in late 2017, a growing number of exchanges started adding to the offering.

There are a number of factors to look at when considering the growth of the cryptocurrency derivatives market. Trading volume is one of the most popular factors, and that growth is clear once we take into account the Bitcoin Mercantile Exchange (BitMEX) traded over $10 billion in a single day back in May.

Exchanges entering the market include ErisX, which has revealed it’s targeting the launch its physically-settled bitcoin futures contracts in the second half of this year, as well as Bakkt, which is now testing its bitcoin futures contracts that’ll be listed on “a federally regulated futures exchange.”

Regulatory Complexities

These developments in the cryptocurrency derivatives space have caught the eye of regulators who are seemingly paying more attention to the crypto space as time goes on – partly thanks to Facebook and its soon to be launched cryptocurrency.

The U.S. Commodity Futures Trading Commission (CFTC), it was revealed on July 19, started investigating BitMEX “months ago” for allegedly allowing U.S. users to trade on its platform. Those residing in the country are barred from trading securities, derivatives, and futures products on platforms that aren’t regulated with it.

While it has been far from clear that BitMEX were in fact doing so, with the exchange repeatedly denying the allegations, the investigation has seen users withdraw bitcoin from the derivatives trading platform, such that one point BitMEX’s outflows were of $84 million in a day, while its inflow was of only $12 million.

The growing popularity of derivatives markets makes it clear there’s a need for users to be informed about the dangers of using too much leverage when opening a position. Even though accounts dedicated to documenting liquidations on these platforms are all over social media, some seem to find it enticing despite the risks:

OKEx Upping the Game

With so many products launching, both regulated and unregulated, and with complex models of derivatives emerging, leading exchanges have to distinguish themselves with a superior offering that helps traders carefully track the market.

OKEx, a popular exchange that launched perpetual swaps in December of last year, has recently announced that is offering users real-time data on its trading platforms for futures and perpetual swap markets for nine major crypto assets.

The data analysis platform features six different indicators of crypto market trends which include basis, the ratio of users taking long and short positions, the difference between the spot price and futures contracts’ prices on the exchange, and the average margin top traders are using, as well as their sentiment towards the market.

This kind of data is particularly useful for those who want to keep abreast of the volatile and risk-laden world of crypto derivatives,and make decisions about how to execute trading strategies.

One important facet of this risk is the action of so-called bitcoin whales. Bitcoin whales have been long suspected to be using short and long squeezes to make money through cryptocurrency derivatives. One short squeeze is believed to have led to $180 million worth of liquidations in 20 minutes. A short squeeze occurs when the price of an asset rapidly increases, to force short sellers to cover their positions.

With access to data like OKEx’s therefore, users have the ability to carefully track important data in the space in a clear and visually digestible way, and avoid getting caught in the large movements of the derivative space.