If you’ve heard about the cryptocurrency hype, about the sky-high rates of return and the new financial order, but are still in doubt as to whether there’s a grain of truth to it all and what the real risks of cryptocurrency are — we have prepared a lifehack for you to minimize your risk when working with cryptocurrency, and an example of a financial instrument that will allow you to see the world of crypto in a new light.

The essence of cryptocurrency and ICO isn’t really rocket science, and there have been countless conferences about the principles of the blockchain and the decentralized approach to bitcoin creation. What’s the problem? Why don’t all investors acknowledge cryptocurrency yet? Why, given the astronomical growth of cryptocurrencies, do mainstream investors still consider them the “black sheep” of investments?

One of the main reasons for people’s aversion to crypto is the high volatility of the currencies and the lack of a derivatives market. Derivatives are the basic instrument of any professional investor; they are a contract that grants protection from volatility reduces uncertainty.

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Until the last days of October 2017, there was almost nowhere to hedge cryptocurrency. Investors had no way to protect their investments from high volatility risk. But on the last day of the month, CME, the largest derivatives exchange operator in the world, announced the preparation of a bitcoin futures contract. The market immediately came to life: the price of bitcoin exceeded $7000 in a matter of days, and analysts are predicting sustained growth under the new conditions.

The creation of a futures market indicates the early stages of acceptance of bitcoin as a real financial asset in the modern economy. A derivatives market will, firstly, force regulators to set clearer rules for the cryptocurrency market and, secondly, allow investors to escape the high volatility levels. This makes cryptocurrencies understandable for funds that have years of history working with standard financial instruments. Financial Times and The NY Times have written that, for some fund managers, the creation of a derivatives market has been the decisive argument for market entry.

But can we really say that a full-fledged derivatives market has been created? There is for now only a futures market, and only for bitcoin. What about options, with a daily turnover in excess of 16 million dollars? What about other cryptocurrencies like Ethereum? Ethereum is showing excellent growth (over the past year, its exchange rate has grown from 11 to 300 dollars per unit of Ethereum) and is the technological leader as the platform allowing for the creation of “smart contracts” which are used by most fintech start-ups.

Thus the market availability of derivatives that are understandable to investors allows them to invest with more awareness and peace of mind, and it is exactly this kind of solution that BANKEX has developed on the basis of the Proof-of-Asset Protocol mechanism.

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In order to support the establishment of cryptocurrency as a generally recognized financial instrument, BANKEX has created a mechanism for hedging Ether. Using this mechanism, you can exchange Ether for US dollars or for bitcoin. Do you expect the Ether exchange rate to fall? Open a currency sale position. Will Ether grow? Simply buy more. It’s an excellent analogue to a futures contract, built on the basis of Ethereum. The algorithm works with the aid of Ethereum “smart contracts”, guaranteeing contract fulfilment.

A test version of the product is currently available; you can see how the hedging mechanism works here:

The BANKEX team has also prepared a video instruction for the use of the algorithm:

Ethereum and Bitcoin will thus become just as protected and investment-friendly as standard financial instruments. Cryptocurrencies will now be an excellent option for funds that wish to invest in modern finance, but do not want to take up a lot of risk. In order to start investing just like in a normal futures market, it is enough to enter an Ethereum — USD or Ethereum — Bitcoin contract.

Exchange rate fluctuations are the investors’ main concern when it comes to cryptocurrency. The market is developing at high speeds, and is currently only suited for investors with an elevated risk appetite. However, the opportunity to create derivatives offered by BANKEX and prepared in one form by CME, makes cryptocurrencies more similar to standard financial assets. This increases transparency, brings us closer to creating generally accepted rules for the handling of cryptocurrencies, and protects investors from risk. Investing has now become even simpler and more accessible.