Speculating on Cryptocurrencies: Derivatives Will Help Reduce Liquidity

Speculating on cryptocurrencies has rapidly changed for the last decade. 10 years ago, if you were speculating on cryptocurrencies, you were probably looking for a clever way to buy bitcoin and add it to your blockchain wallet. Back then, there were almost no exchanges, low liquidity and almost no infrastructure. This basically meant that cryptocurrencies were not viewed as a financial instrument.

Cryptocurrencies were in fact looked at as digital novelty. After a while, centralized exchanges began to realize bitcoin’s value and crypto speculation versus fiat became available. A lot of time has passed since then and now traders have countless new ways to effectively mobilize their capital in the growing ecosystem.

Currently, there are many tools for crypto traders to use to give a basic prognosis of where the crypto markets might end up.

Derivatives are basically financial instruments used by traders to speculate in different ways. In bitcoin’s case, much of its value is derived from scarcity due to the difficulty of mining it and controlling it.

Speculating on cryptocurrencies has never been easier

There are many crypto derivatives emerging at the moment and some of them are launched by huge financial firms in the fiat money market. They come in various shapes and sizes and allow different strategies to be pursued in the crypto market. The first crypto derivative milestone was the futures contracts launch on the Chicago Board Options Exchange back in 2017.

In tine, the liquidity in the crypto market due to derivatives will increase. Many economists have stated that in time, the crypto market will be far less volatile and will be an ever more alluring lure for funds that wish to expose their capital to new growth strategies.

Derivatives were created to control risk as well as encourage speculation. Their comfortability and rapid growth in crypto is a notable characteristic which can be seen as both development and a huge risk.

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