Since its inception in the crypto-verse, Bitcoin has remained the number one cryptocurrency to invest in. When Bitcoin first emerged in 2010, it traded around $0.08. Since then, the world has seen an exceptional hike in the prices of many cryptocurrencies, however, nothing has matched Bitcoin’s value. At the time of writing, Bitcoin was trading around $57,437.24.
Analysts, traders, and market investors have all come up with their set of observations and research to explain what makes Bitcoin so valuable. We, at Cobidex, will help you understand what drives the massive price rally of Bitcoin. In doing so, we will also cover the financial markets that have fine-tuned themselves to Bitcoin, including derivatives trading and options trading. So, let’s get started!
What Makes Bitcoin so Valuable?
The mass adoption of Bitcoin, which eventually made it grow in value, can be attributed to the following factors:
- The prime source of value for Bitcoin is the economics of its supply and demand. Bitcoin derives its value for being scarce similar to gold. In fact, it has been dubbed digital gold.
- Bitcoin comes with the security of Blockchain and cryptography, which solve the double-spending and counterfeiting transaction details. The decentralization offered by Blockchain makes Bitcoin more attractive to people as opposed to government-regulated fiat currencies.
- Reduced transaction costs and transaction time are two winning features that helped establish Bitcoin as an ideal trading option. The cost to transfer a cryptocurrency like Bitcoin is near minimal as the number of parties involved is technically only two. Pitch this against the traditional fiat money transfer, and you’ll know!
- Bitcoin is considered smart money owing to its programmability, something entirely out of the question for fiat currencies.
Understanding Bitcoin’s Adaptability in the Derivatives Trading Market
The popularity of Bitcoin and other cryptocurrencies set the stage for implementing traditional investment strategies in the crypto-verse. Derivatives have always been a hedging/speculative instrument for volatile assets. Therefore, it is not surprising for cryptocurrency traders to utilize the possibilities of Bitcoin derivatives which come in the form of future, option and perpetual contracts.
Bitcoin derivatives are securitized contracts that rely on the underlying price of the assets but with an option to speculate and profit from their price movements in the long term. Let’s look into the different types of contracts that fall under the larger ambit of Bitcoin/cryptocurrency derivatives trading.
Futures Trading
As the name suggests, futures contracts are settled on a later date at a predetermined price. In a futures contract, a trader ideally speculates on the price movement of the underlying digital asset till a specific date in the future. Depending on their speculation, the trader decides to either buy or sell the asset on a future date. Profits or losses are realized at the end of the expiry date.
Options Trading
Cryptocurrency options trading is a step ahead of futures contracts in that they work as instruments to limit the losses, unlike futures where there exists no restriction. The buyer pays a premium amount to protect the seller’s cause. And there is no obligation to execute the trade on the exact predetermined date, unlike future contracts. It can happen before that.
Future contracts make it mandatory for the trade to be executed. However, there’s no mandate for implementing the buying or selling of the underlying securities in the case of options as they can expire ‘worthless.’
What are Perpetual Contracts in Cryptocurrency Trading?
The new and the more advanced kid on the block in the world of cryptocurrency derivatives is perpetual contracts. The biggest USP of a perpetual contract is that it never expires. Some of the benefits of trading Bitcoin perpetual contracts are:
- Futures contracts may end up cooking a recipe for disaster for a volatile asset like Bitcoin. On the other hand, Bitcoin perpetual offers traders greater freedom as they are not obligated to close a position even if the asset’s price suffers.
- Perpetual contracts trade at a price close to the spot market price of Bitcoin. In this, they closely follow the underlying index price of Bitcoin.
- Perpetual contracts allow traders to utilize higher leverage to open a larger position and retain bigger profits from trades.
How Does Leverage Trading Work?
Exchanges dealing in perpetual offer leverage up to 150x on a small amount of initial capital. This means traders can bet on the rising value of bitcoin or another cryptocurrency. And increase their investment by borrowing more capital from the exchange. We must understand that such undertakings come with their own risks as the leverage is directly proportional to the profits and losses. So, it’s always wise to begin small.
Cobidex Starts its Journey with its USDT Perpetuals
Cobidex is imagined as the world’s first community-owned cryptocurrency derivatives platform. It is all set to commence its course with USDT perpetual. USDT standard perpetual contracts in all varieties of contracts use the denominated currency USDT as collateral assets. This means USDT works as the quote and the settlement currency. This is a better alternative to traders who are looking to avoid the extreme volatility of coin-margined contracts.
A USDT standard perpetual contract is denominated in USDT. Thus, for a BTC/USDT pair, the index price is the price taken from the spot price of BTC/USDT. To understand the concepts of profit and loss on USDT perpetual, read our detailed guide.
Conclusion
From intraday to being traded on the derivatives market, Bitcoin has come a long way. The cryptocurrency trading community considers Bitcoin’s volatility as a double-edged sword. It is scary, and at the same time, highly profitable for buying low and selling high.
Therefore, the rise of speculative trading comes as no surprise. Moreover, what could be a better way of gaining on Bitcoin’s rising value than buying its derivatives that offer leverage that is in no way possible with owning bitcoin directly? Also, we must not forget that derivatives act as hedging instruments as they are based on an asset’s ongoing value rather than its immediate value.
Perpetual contracts are the new kid on the block as far as cryptocurrency/bitcoin derivatives are concerned. They benefit traders by allowing them to keep their positions open for as long as they wish to, with the added advantage of leveraging their positions.
Cobidex is riding on the back of this storm, providing traders with the opportunity to choose from the world’s most popular perpetual contracts. A reason to consider Cobidex as your derivatives trading partner is its wide range of community-focused incentive programs that turn your trading costs into investments. Want to learn more? Check out our socials.
