How Futures Are Conquering the Crypto Market and Why It Is Important Onederx Follow Mar 19, 2019 · 5 min read

The cryptocurrency futures market is booming and bashing the shrinking spot market with its rapidly growing trading volumes. The reason for this is the nature of the spot cryptocurrency market and the bearish trend on it. In this situation, the futures contracts are a great alternative tool for the traders to hedge their long positions on the spot market by opening short positions in a futures contract and to trade both ways.

One of the popular cases of how a futures contract on Bitcoin yielded an enormous profit is that of Mark Dow, a former economist at the International Monetary Fund. He opened a short position for a futures contract on Bitcoin when it cost around $17,000 and closed it on December 18 when Bitcoin plunged to $3,200.

A notable fact is that the money Mark Dow earned on his short trade was legally accepted by state financial institutions and he was able to legally withdraw it from the exchange.

The popularity of futures contracts for Bitcoin and especially perpetual contracts (swaps) is dictated by the steep decline on the cryptocurrency market, which does not provide for a situation for the traders to make earnings. The futures are an ideal instrument for making money on a bear market by opening a short position. The current spot cryptocurrency market is characterised by a very low volatility and greatly reduced trading volumes whereas the the futures contracts for Bitcoin have added a huge bulk of volume very rapidly.

For instance, CME’s Bitcoin futures contract has increased the daily trading volume by 220% since December, 2017 while the Bitcoin market volume has decreased by more than 80% since early 2018.

And this chart clearly shows how futures trading volumes on Bitmex — the leading cryptocurrency futures exchange — rose against the downfall of Bitcoin throughout 2018 (the grey line is Bitcoin price).

(Originally Bitcoinity.org)

Another demonstrative example of futures boosting exchange volumes is how trading volumes on Kraken skyrocketed after it affiliated Crypto Facilities, a CFA-regulated cryptocurrency trading platform and index provider. After that deal Kraken was able to launch trade of perpetual futures contracts for a number of cryptocurrencies. Shortly after that trading volumes on Kraken reached 1 billion dollars a day increasing by 565% in the first five days after the deal was announced compared to a similar time period preceding the deal. The deal was announced on February 4th.

Still, it is Bitmex ranking in number 1 in trading volumes for cryptocurrency derivatives. Bitmex is a cryptocurrency derivatives exchange that offers perpetual contracts with a leverage of up to x100 for Bitcoin and up to x50 for Ethereum. The daily trading volume on this exchange for the Bitcoin contract reaches over $1 billion.

Trading volume on Bitmex for XBT/USD on 03/18/2019

According to CryptoCompare research (p. 10) the unregulated Seychelles-based Bitmex on the average accounted for over 96% of trading volumes of the Bitcoin futures market with CME’s and CBOE’s volumes included, which seems to have been in October 2018.

Still, this exchange has numerous imperfections. They include system major overload in peak hours, slow order processing and withdrawal only in Bitcoin. This exchange has also been accused of price manipulation. All of this is pretty horrible. For this reason, there is a lot of room for improvement on the cryptocurrency derivatives market.

And some projects are aiming to provide better service in the area of cryptocurrency derivatives. The most prominent of them are ErisX, Deribit, Bakkt and SeedCX.

Right now, it is a hot time for cryptocurrency derivatives and these exchanges can ride this forming trend swifty. ErisX is currently a spot cryptocurrency exchange and plans to launch futures trading in the second half of 2019 when it gets a regulatory approval. Seed CX launched in the late 2018, it offers spot market trade and CFTC-regulated derivatives for constitutional investors.

Bakkt is another major foundation for the cryptocurrency market from the Intercontinental Exchange (ICE), an NYSE operator that is to be launched in early 2019. Bakkt is a digital assets trading platform focused on institutional investors and compliant with the regulatory requirements of the US futures trading financial regulator CFTC (Commodity Futures Trading Commission). In its notice on December 31, 2018 ICE told that it was working with CFTC to get a ‘regulatory approval for physically delivered and warehoused bitcoin’. Also, in that notice the company stated ‘Each futures contract calls for delivery of one bitcoin held in Bakkt Warehouse, and will trade in U.S. dollar terms.’ This means that each Bakkt Bitcoin contract will be tantamount to one Bitcoin.

Another new project in the area of cryptocurrency perpetual contracts of a smaller scale is Onederx. It was launched very recently in 2019. Onederx is an all-derivative exchange offering a perpetual contract for Bitcoin with contracts for other digital coins coming later on. Onederx is primarily aimed at professional traders and offering classical two-way-trading instruments. The exchange features a simple interface that includes a manipulable chart provided by TradingView, an order book and and tools for order control. The value of a single Onederx Bitcoin perpetual contract is worth 1 dollar.

A technical edge of this exchange is that it has a very low latency, which in 99% cases constitutes ≤ 2ms whereas the long-existing crypto exchanges have a latency of 0.1 up to 1 second which is very slow for high-frequency automated trading sometimes requiring a timely execution of hundreds of orders in a few seconds. On top of that Onederx is the first exchange in the world to offer negative fees for the takers. Thus, the exchange offers one of the best trading conditions amongst all crypto futures exchanges.

At the time of writing, Onederx has been active for around one month and might so far not look too impressive but considering that this project has not received large investments it may be considered a certain success. For this reason, Onederx should be watched closely by those who are interested in the novelties in digital asset and cryptocurrency trading.