Derivatives help increase liquidity and improve markets for an asset category by allowing investors to bet on ups and downs of an asset, evening allowing individuals to adopt market-neutral strategies. They are also a key component in the creation of many futures-backed ETFs utilized by a range of investors.
Some market observers believe the launch of bitcoin futures will speed the introduction of exchange traded funds based on the digital currency. In recent weeks, several ETF issuers have also filed plans for blockchain ETFs, which would hold stocks with exposure to the digital currency trade.
“Unlike the futures market for traditional physical commodities, the market for exchange-traded bitcoin futures contracts has a limited trading history and operational experience and may be riskier, less liquid, more volatile and more vulnerable to economic, market and industry changes than more established futures markets. The liquidity of the market will depend on, among other things, the adoption of bitcoin and the commercial and speculative interest in the market for the ability to invest in and hedge against the price of bitcoin with exchange-traded bitcoin futures contracts,” according to Direxion’s filing.
For more information on the cryptocurrency market, visit our Bitcoin category.