On the Massive growth of the Bitcoin Derivatives market and its implications on Bitcoin’s future.



In 2019, the primary use of Bitcoin remains investing and speculation. At face value, a look at Bitcoin’s spot market volume paints a bleak picture.

Diving deeper we see a thriving derivatives market showing that Bitcoin’s liquidity is healthier than ever. This article investigates the recent developments in Bitcoin trading behavior and its numerous benefits to the ecosystem.

What is Bitcoin’s Real Volume?

Identifying Bitcoin’s true trading volume is a topic of popular debate.

In early 2019, Bitwise found that 95% of reported Bitcoin exchange volume on CoinMarketCap.com was fake. Bitwise concluded that only 10 exchanges could be relied upon to accurately report trading volume. Soon after, Alameda Research reported that while many exchanges do produce fake volume data, the actual amount of real trading volume was significantly higher than Bitwise had found. Alameda’s report and live monitor of estimated true daily Bitcoin volume can be found here.

Instead of identifying an absolute number for Bitcoin’s actual trading volume today, this article is more concerned with the change in trade volume over time. By analysing the change in volume, we can drive insights into the development of Bitcoin’s ecosystem.

To develop a reliable historic Bitcoin volume profile, a conservative selection of Bitwise and Alameda trusted exchanges with data available on TradingView has been used.

I believe this is the first publicly available view of the change in Bitcoin’s trading volume over time.

You can read more about the approach, exact data selection and access the free live indicator on TradingView here.

The Spot Market is Basically Flat

As the below figure shows, spot market volume (the value of unleveraged physical Bitcoin bought and sold against a fiat currency) hasn’t grown beyond the heights of the 2017/18 bubble.

bitcoin derivatives

Average Weekly Bitcoin Spot Market Volume Has Not Surpassed the peak of 2017
[Source: TradingView “Bitcoin Real Volume”]

However, since the beginning of 2018, a new dynamic has been unfolding — the massive use of Bitcoin derivatives.

Derivatives Have Changed Everything

It is no longer appropriate to consider spot market Bitcoin volume alone.

The derivatives market, where traders use futures contracts to leverage long and short positions on Bitcoin, has consumed the spot market in size. Bitwise also found that the futures market was significant, with CME and CBOE futures volume representing almost the same amount as the daily spot volume earlier in 2019.

Looking at just four popular Bitcoin futures market exchanges: BitMEX, CME, Deribit and FTX shows just how great this impact is.

The fast growth in the use of derivatives is astonishing.

Bitcoin’s combined spot and derivatives trading volume is currently at a level comparable with the peak of 2017/18.

As recently as August 2019, average daily Bitcoin volume was more than 40% greater than at the height of the 2017/18 bubble.

The Bitcoin Derivatives Market Volume has Swallowed the Spot Market
[Source: TradingView “Bitcoin Real Volume”]

Why Derivatives Volume is Here to Stay

The growing use of derivatives isn’t showing any signs of slowing, and we have no reason to suspect that it will. Some have called the recent surge in futures trading a fad, much like the ICO craze of 2017, but a look at fiat currency markets tells a different story.

Globally, the nominal value of open fiat currency derivatives contracts is somewhere in the region of $1 Quadrillion dollars. That’s 6250X greater than Bitcoin’s $160B market cap.

Fiat derivatives are between 6X and 13X greater than the total fiat currency supply.

Bitcoin has a lot of room to grow.

The Fiat Derivatives market includes Futures, Forward Contracts, Options, Warrants and Swaps. The first Bitcoin Options market will open in under a month by ICE’s Bakkt, followed by CME in Q1 2020.

Estimated Value of Traditional Currency Markets
[Data Source: The Money Project, 2017]

Volume as a Leading Indicator

It is not uncommon for strong volume growth to proceed strong price rallies. As recently Tweeted, past occurrences of all-time highs in volume, followed by price consolidation, were followed by major Bitcoin rallies. The recent surge in volume could have big implications for potential Bitcoin price movements.

The Benefits of Increased Liquidity

Increased volume is a step toward greater Bitcoin adoption. It provides a bigger on-ramp into Bitcoin.

Greater liquidity allows larger financial institutions easier access to the Bitcoin market because:

  • The market price can be better trusted
  • It is easier to enter and exit the market with larger sums of money without experiencing major price slippage
  • Option and other derivatives instruments provide a variety of investment strategies

Derivatives also allow miners to hedge their near-term cash flows by locking in a Bitcoin sell price before their coins have been mined. Instead of hoping that Bitcoin’s price will remain the same or rise, miners can short (sell) Bitcoin today or buy ‘put’ options. Such a process can assist miners in achieving more certainty in their revenue streams, allowing them to better manage their operations to ensure they achieve profitability. This certainty also makes the cost of ‘switching’ to other cryptocurrency mining greater.

Miner hedging could be particularly useful around halvings, where reduced profitability can cause a Miner sell off and short-term collapses in the Bitcoin Price. As a result, we may see even smoother growth in Hash Rates in the long-term.


  1. Bitcoin is more liquid than ever before
  2. This liquidity provides institutions a bigger onramp into Bitcoin
  3. Derivatives give Bitcoin miners more revenue certainty and therefore ability to commit to the Bitcoin network long-term.
  4. High volume growth can precede large bull runs

Finally, the more Bitcoin trading instruments are approved by regulators, held by funds and traded by banks (which may have been traditionally “too big to fail”), the harder it is for Governments to dismiss and outlaw.

It’s a win-win for long-term Bitcoin adoption.


This articles was originally published here.

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