Momentum Is Building Fast in Bitcoin Trading Products Market
While the cryptoverse has been less than excited with the price action upon the thawing of crypto winter, there has been an explosion of new tools introduced to the industry that are very familiar to those who have spent time in the finance world. In fact, even though most of these new products have only been around for a few months, according to data provided by Skew and Blockchain.com, the relatively new bitcoin futures market is seeing notional amounts traded that are on some days 20 times more than the “real” amount traded each day in bitcoin on traditional crypto-to-crypto exchanges.
Daily bitcoin futures trading is 20X or more the volume of bitcoin trading on traditional crypto-to-crypto exchanges.
What are those new financial tools? Those would be the well-known financial risk management tools known as futures and options. On September 23rd, Bakkt began its first day of trading crypto futures based on Bitcoin. Here is the link to those initial results via the DailyHODL. Although its first day of trading disappointed traders, which led to a substantial swoon in cryptocurrency prices, its volume had gradually begun to increase in the month since its launch. The following graph represents the volume history as of last week:
And then last weekend happened to bitcoin. It was the 4th largest bull move in the history of bitcoin’s daily price moves.
NewsBTC analyzed the historical price movements, confirming its monumental status. After this weekend’s epic bitcoin moon, the Bakkt volume chart that @BakktBot regularly tweets out looks just a wee bit different. Take a look:
What was the previous high on October 9, 2019 was exceeded each of the 3 days leading up to the expiration of CME futures contracts. On the historic day, Bakkt volume exceeded its previous high by more than 5-fold by printing $10.3 million worth of volume on October 25, 2019.
Much of the media associated bticoin’s gain with policy announcements out of China. We at Konstellation firmly believe that China is the lynchpin for blockchain development in financial services (Our CEO Sang Lee even talked about this in a recent video!). But we do not believe that one stump speech by Xi explains the entire reasoning behind a $3000-plus move in BTC. There is definitely more to this story, as we explained this weekend on the Konstellation Linkedin account using the following graph as evidence.
For sure, the nascent bitcoin trading products market has an extremely bright future. Bakkt entered this exciting new market with backing from more traditional players like Microsoft, Boston Consulting Group, Intercontinental Exchange, and Naspers. We also recently saw the launch of Binance Futures to add to the nimble crypto startups already in the derivatives space like CoinFLEX, FTX, Deribit and BitMEX.
Konstellation is also working with a project in our ecosystem that is looking to help Asian retail investors get exposure to top-flight investing strategies that might benefit from these extraordinary pricing meltups.
Of course, this weekend saw volume increase dramatically across all things crypto. However, while trading volume on the crypto-to-crypto exchanges that we’ve all become familiar with had fallen off precipitously since the mini bull run earlier this summer, volume on these derivatives exchanges were much more stable during that period, hovering around that $5 billion per day mark, as you can see in the following graphic sourced from Skew.
As we are seeing with the reaction to this weekend’s price action, blockchain enthusiasts should not despair at moribund volumes at crypto-to-crypto exchanges. It only takes a single spark to set off a rush of fresh interest. The development of a healthy, robust, and most importantly liquid crypto derivatives market is part of the natural maturation of the crypto markets.
As Arthur Hayes of BitMEX said when we saw him in Taipei this summer, “Traders want more places to trade similar risk.”
One of the most dogged aspects of the crypto markets these days is its overall lack of liquidity. We need these kinds of platforms and products to provide a place to trade innovative new products. Again, as BitMEX’s Hayes said at this year’s Asia Blockchain Summit, the industry needs to “establish a bedrock credit curve for crypto. At that point, we can start bringing the finance to blockchain.” Hard core “decentralize everything” advocates might disagree, but we stand with the sentiments expressed above. The blockchain industry could stand to see a little more influence from the finance industry, especially in terms of risk and portfolio management.
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