What are crypto derivatives? | Get Started with Bitcoin.com (2024)

FAQs

What are crypto derivatives? | Get Started with Bitcoin.com? ›

A crypto derivative, such as a “perpetual futures," is a financial instrument that “derives" its value from an underlying cryptocurrency or digital asset. For example, there are many perpetual futures contracts based on Bitcoin. Derivatives are contracts between two or more parties.

Crypto derivatives are complex financial contracts that take place between a buyer and seller, and often corroborates with high-risk, high returns strategies. Crypto exchanges facilitate traders to invest in derivatives that come with three variations: crypto futures contracts, perpetual contracts, and options.

The first bitcoin futures platform emerged in 2011 but didn't attract much market attention. BitMEX joined in 2014 to foster bitcoin derivatives market and invented perpetual swaps in 2016.

Introduction. Funds deposited into your USD Fiat Wallet via the ACH Pull Network (i.e., the Instant Deposit feature) can now be used for trading Derivatives via the Crypto.com App, subject to certain criteria. This allows you to access immediate funding to trade Derivatives before your deposit settles.

[1] BTC and ETH are the most frequently referenced crypto assets in crypto derivatives.

Derivatives are also used to speculate regarding the future price of cryptocurrencies. For example, if you purchase Bitcoin, you can profit if prices go up. But in the case of a bear market, you can't profit under this principle because prices are going down constantly. This is where futures contracts come in.

Derivatives are securities whose value is dependent on or derived from an underlying asset. For example, an oil futures contract is a type of derivative whose value is based on the market price of oil.

Crypto derivatives market overview

For centralized derivatives, non-US markets lead in trading volume, while in the US, CME is the predominant player with over 60% market share of the monthly derivative trading volume in the US as of September 2023.

Investing in crypto, still a new and volatile asset class, follows many of the same rules as investing in other markets. The most important rule is never to invest more than you can afford to lose. Safely storing your crypto in a secure wallet or with a trusted custodial service is essential.

How to trade derivatives? ›

Derivatives can be traded over the counter (OTC) or on-exchange: Over the counter: the terms of the contract are privately negotiated between the parties involved (a non-standardised contract). For example, a contract between a trader (like you) and a broker (like us)

This means you get full access and control of your crypto private keys. Unlike a centralized custodian on the Crypto.com App, you have complete ownership of your crypto when they are stored in the Crypto.com Wallet.

Your virtual assets are stored 100% safely and perfectly.

We hold all customer assets deposited on our platform in institutional-grade reserve accounts on a 1:1 basis, meaning funds are responsibly backed by Crypto.com and accessible at customers' convenience.

With potential returns projected at 1000x by 2025, 5thScape is a promising contender in the rapidly evolving crypto landscape.

Five of the more popular derivatives are options, single stock futures, warrants, a contract for difference, and index return swaps.

Alongside Bitcoin, four altcoins - Pepe Unchained, Crypto All-Stars, Base Dawgz, and Solana - are showing potential for significant growth in 2024, driven by their unique features and strong communities. After a trying journey, Bitcoin is preparing for another surge.

Key information. On 6 October 2020 the FCA published rules which banned the sale of derivatives and exchange traded notes that include certain types of cryptoassets for retail customers.

Two common examples of currency derivatives include currency futures contracts, which obligate parties to buy or sell a specified currency at a predetermined price and date, and currency options contracts, which give the holder the right to buy or sell a currency at a predetermined price within a specified period.

Crypto options are derivatives instruments. Buyer of an option is required to pay the premium upfront to have the right but not the obligation to buy/ sell the underlying crypto at settlement. On the other hand, option sellers receive the premium paid by the buyer and are also required to post a margin.