The cryptocurrency market is burgeoning and making headlines every other day. The growth of this new form of currency has become a hot topic for discussion amongst businesses, as well as among individuals. It is emerging as a potential tool for effective trading and long-term investing. The cryptocurrency market capitalization is expected to reach a trillion dollars by 2018 end. This highlights the fact that the crypto world is still in its nascent stage and possesses a great potential for growth. However, despite the growing popularity of cryptocurrencies, people, in general, are still skeptical to consider it as an efficient medium of trading and investing. This hesitation and negativity lingers as a result of some challenges faced which act as obstacles to the exponential growth of the cryptocurrency market. A few challenges slowing down the progress of the cryptocurrency market include:

· Lack of crypto indices derivatives for hedging crypto portfolio

· Absence of derivatives ecosystem for active traders

While multiple crypto exchange platforms have their own indices to measure the rise and fall in the value of a cryptocurrency, there is no single trustworthy, standardized and regulated crypto index which is available in the futures market, that can be used for the purpose of speculating and hedging. This prevents an investor from speculating and generating returns like in the traditional stock markets.

Furthermore, while the exchanges of other financial products have derivative products to hedge the investments made, there are no such standard products available in the crypto exchange market. Risk management is, therefore, a big concern for large institutional investors and trade houses.

Why the absence of hedging instruments is undesirable

Hedging is a risk reduction technique to offset fluctuations caused in the price of assets like commodities, stocks, bonds, and other assets in an investor’s portfolio in the short time frame. Investors and even traders use hedging techniques like futures and options to safeguard their positions in the underlying instruments. Now, in the case of cryptocurrencies, hedging instruments are unavailable to investors. As a result, investors face a hard time when it comes to managing their risks and maintaining their portfolio delta. This problem especially magnifies in the case of downtrend in the price of cryptos as traders are unable to short sell the cryptos to hedge their long positions.

Why the existing crypto indices aren’t good enough

The lack of a standard crypto index across the existing crypto exchanges is holding the cryptocurrency market back from emerging as a full-fledged financial market.

For instance, traditional trading is governed by market indices like S&P 500 that act as a benchmark for big institutional investors and trading houses to monitor the health of their investments. Similarly, there is a need for standardized indices for cryptocurrencies to boost investments and make the environment more protected. The financial community is in a dire need of a platform which can:

· Emulate the other financial markets and create a safe environment for traders and investors alike

· Establish a standard crypto index with options to trade in derivatives.

The global economy is heading towards digitization. To convert the challenges faced by cryptocurrencies into lucrative opportunities, there is a need for more robust, advanced and user-friendly cryptocurrency trading platforms. The emergence of innovative and all-encompassing cryptocurrency trading platforms will help the market participants to indulge in various strategies and manage their risk effectively. Furthermore, it will ensure and accelerate a smooth transition towards an economy wherein cryptocurrency will play a major role in its functioning and progress.