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Retail Crypto Derivatives are Great, but…

Crypto market was at forefront of financial innovation, but with these regulations, standardization, and commoditization, not anymore…

Earlier on June 25th, Bloomberg announced that soon small U.S. retail investors will be able to buy derivatives that pay out with Bitcoins, as LedgerX, a U.S.-regulated Bitcoin derivatives exchange and clearinghouse, won approval from the Commodity Futures Trading Commission to serve as a designated contract market will offer Bitcoin spot and physically settled derivatives contracts, including options and futures.


This is clearly a great progression in the market, and means that now investors and traders will be able to improve risk management, speculation and investing activities and is a clear sign that crypto market is slowly maturing.


Options and futures are well-known old type derivatives which served capital markets for many decades already are finally in crypto, but there are few not so pleasant points…


Firstly, LedgerX will allow for derivative trading only to consumers living in the U.S. or Singapore, which is a good point due to compliance improvement, however, immediately cuts the rest of the world from trading by limiting liquidity, market efficiency, and price discovery.


Second, initial deposit of at least $10,000 in dollars or Bitcoins will need to be made (yet, planned to be reduced to zero by the end of the year), which again limits the customer base with the known consequences.


Third, options and futures are standardized contracts, which means that while customers will have flexibility in choosing which contracts to trade, they yet will be limited in the contract specifications, which helps to liquidity, but harms the investment opportunities.


Fourth, the most important point is that crypto market was considered to be on the front of financial innovation by implementing new instruments, new investment schemes and new products, however, bringing in old types of derivatives on the contrary means market maturity and standardization which makes it grow in the “wrong direction” – instead of moving towards innovation, it moves toward the traditional capital markets. While crypto market has it’s drawbacks and limitations, it undoubtedly should be accelerating innovation and implementing new types of instruments, such as Tranched Value Securities TM (patent pending).


Crypto market is the one that was on the front of financial innovation, and must continue to be that. It should move toward more flexibility, more opportunities, more instruments and better products with consideration of investors’ security rather than implementing old types of instruments and commoditizing market.


But… this is not what we see currently in the market… Instead, all major market players do just the opposite – move towards regulated, commoditized and standardized instruments as 14 out of 15 exchanges offer similar types of futures, 6 out of 15 – offer leveraged perpetuals, and 4 out of 15 offer options.


Crypto Derivative Exchanges and Their Offerings


Source: Alter Securities TMResearch based on public data.


Is increased leverage, and implementation of old instruments with new underlying assets the so called innovation? – Our answer is: No! And we, at Alter Securities TMdevelop new financial instruments, such as Tranched Value Securities TM and innovative technology, which was unavailable elsewhere – nor in capital markets, nor in crypto finance! We aim to improve market efficiency, expand investment opportunities set, and enhance investors’ risk-return profiles. We aim for open, global financial system that is efficient, accessible and accommodates all investors.


We are excited to reveal some of our upcoming developments and we hope you will join us on this journey.

To learn more about Tranched Value Securities, sign up for email updates on our website. To stay up to date on Alter Securities news and announcements, follow us on LinkedIn, Twitter, Facebook, or Instagram.


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Alter Securities is a service mark and/or trademark of Alter Securities. Supporting documentation for any claims and statistical information will be provided upon request. Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

 

The risk of loss in online trading of stocks, options, futures, forex, foreign equities, fixed income and derivatives can be substantial.

 

Derivatives involve risk and are not suitable for all investors. For more information read the "Characteristics and Risks of Derivatives". Before trading, clients must read the relevant risk disclosure statements on our Warnings and Disclosures document -

Warning and Disclosures. Trading on margin is only for sophisticated investors with high risk tolerance. You may lose more than your initial investment.

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