Crypto-Derivatives Market Evolution: Where we are, and where we need to be

This article was first published by e-Forex Magazine. Please visit the link here.

The cryptocurrency derivatives market has as many specific attributes as the cryptocurrency spot market. Namely, they feature developed decentralisation, largely unregulated platforms and diverse instrument specifications. However, some features of this market are exclusive to cryptocurrency derivatives.

Following the evolution of the foreign exchange market, we may expect the following changes in the crypto derivatives market:

  • Increase in transactional activity of robots on crypto derivatives platforms
  • Emergence of new restrictions to control hyperactive bots
  • Increase in the conversion of orders into transactions
  • Increase in the number of regional platforms
  • Growth of the OTC market

The evolution of cryptocurrency and crypto-derivatives platforms has now taken a very healthy path. Some platforms are beginning to introduce Know-Your-Client (KYC) procedures, trade processing speed is growing and, there is now little to no noise about the hacking of exchanges and the theft of client funds. Reliability and performance will improve as time goes by.

Derivatives platforms should come together to create special committees and associations lobbying their interests, developing regulatory practices and recommendations that help standardise trading instruments and interact more closely with each other.

Performance of the platforms must grow to allow them to cope with the loads at any market volatility inherent in such a decentralised environment. For cryptocurrencies, this is especially important. Access to liquidity in the fast market must be guaranteed, and technical problems on the exchanges must be minimised.

Derivatives market regulations must become international and adopted by the largest exchanges and regulators. The industry should aim to become transparent; this is beneficial to all its legitimate participants. KYC procedure should become universal, understandable and straightforward. Ideally, it should imply one-time access to all the markets.

Such regulations should include the assessment of fair market commissions and practices. All market participants must have a level playing field. Any special trading conditions create non-competitive markets that negatively affect the liquidity of the entire market. The ability to compete on an equal footing with large players is critical to the healthy development of markets. The commissions themselves should be able to provide an opportunity for traders to work more actively when supplying the market.

We cannot stress enough that cryptocurrency exchanges that remain teetering on the edges of regulation are doing themselves and the industry a disservice. Institutions will enter when the market players provide the best possible opportunity in the long-run.


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