Institutional Investors Derivative for Bitcoin-Gold

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The rise of crypto in recent times has been massive. The cryptocoins are more mainstream already. They are part of the several exchanges while also accepted in business for various solutions.

The main concern, however, is the volatility and uncertainty that comes with the prices. The Bitcoin price is always on a roller coaster. It takes time and expertise to analyze the market price. This is different from the stable gold.

Even though most people consider Bitcoin "digital coin," it is yet to reach gold's stability. 2020, for example, has seen Bitcoin have some dynamic price shifts. The coin has traded both lows and highs in the same year.

Gold has been stabling all through. It gained 25% in the previous year. 

It has not experienced any downturn. That is where the Bitcoin-Gold derivative comes in.

Bitcoin-Gold Derivative

With both Bitcoin and Gold offering high value, there has been a need to trade the two. An over-the-counter trading firm from London has made that possible. It allows users to trade gold against Bitcoin. 

It enables the traders to gain an ounce of the precious metal weighed against Bitcoin. 

The new product is particularly significant for institutional traders. It allows them to trade in the assets without necessarily owning the underlying products. The traders can take both short and long positions. 

The Bitcoin-Gold trading option comes at a time when the market needed it the most. The trading platform is also quite functional. It comes with the Financial Conduct Authority regulation for assurance of best market conduct. 

Bitcoin-Gold has been quite successful. While it had attracted newer investors the past year, this year seems better off. A report by Fidelity revealed that twice many institutions have invested in the derivatives compared to 2019. 

The report came out just before the beginning of the Coronavirus. It means the market has a different outlook at the moment. The pandemic has affected the crypto world like any other investment option. 

The pandemic has made most people look for digital assets. They have proven to be the best alternatives. After finding so much value in Bitcoin-Gold, the trend is likely to have shot.  

Other Bitcoin Derivatives

• Bitcoin Futures 

Bitcoin futures is one of the most popular bitcoin derivatives. The most-traded asset appeared in the stocks as early as 2012. Still, it would last until 2014 before it became a hit among most traders. 

Today, several crypto exchanges like OKex have the bitcoin futures as one of the tradable assets. It can trade as much as billions in volume within a day.

The futures are popular due to the contract's mechanism. Two parties agree to trade an underlying asset at an agreed-upon price at a later date. While various exchanges provide for different finer details, it is the same concept. The agreed future date can be weekly, bi-quarterly, or quarterly. Most of the exchanges offer such conveniences. 

Most of the exchanges allow the users more choices other than the underlying asset. The parties can instead agree to complete the deal through cash or other monetary options.  

Bitcoin futures are popular due to the ability to manage risk. The value of the currency can change even within minutes. The futures contract is the only assurance the trader will get the right value. The futures also help in managing margin. One can still open a margin even with the prospects of the market going down. 

• Bitcoin Perpetual Futures/swaps 

On top of the bitcoin futures, there is also the bitcoin perpetual futures/swaps. These are futures without an expiry date. The traders don't have to close at any given point. They can hold the contracts as long as the accounts have enough assets.

The future swaps rely on the underlying market factors to balance the prices. 

• Bitcoin options 

Bitcoin options are another derivative to consider. They are similar to the futures; except they allow the user to either sell or keep the assets at a future date. Even though new, the options have been attracting traders. 

The bitcoin options come in two forms; calls and puts. The call option allows the trader to buy the underlying asset at the set future date. The put option, on the other hand, allows the holder to sell. 

The options have grown to trade more than $1B in recent months. 

It also comes as either American or European. The holder can sell or buy the underlying at any time when using the American bitcoin options. The European options allow the seller the rights only after maturity. 

How Derivatives Attract Institutional Investors 

The rise of the Bitcoin-Gold and other derivatives has been the driving force behind institutional investors' upsurge. The main reason for this rise is the increased trust. Institutional investors are all about risk management. They would only invest in an asset that offers the best of risk management.

Unlike Bitcoin crypto, the derivatives are highly regulated. They also offer additional investment options, which means better liquidity. The more options the investors have, the better the risk management. 

The entry of the derivatives is one of the best developments in the crypto world. It has been at the centre of the maturity of Bitcoin. As many institutional investors pick up the coins, others pick cue. A rise in demand leads to increased value.

The high value is equivalent to a return on investments. Nothing is more attractive to investors than the assurance of return on investments. Trading in the derivatives is almost similar to the traditional stocks. 

Unlike cryptos, where you need to take time to learn, the derivatives are simple to trade. Anyone who has mastered the stocks won't break a sweat handling the crypto derivatives. 

Bottom Line 

So far, Bitcoin has been a worthwhile investment. It has proven to be resilient even in the face of the Coronavirus pandemic. It has, however, kept the volatility nature active.

The Bitcoin-Gold and other derivatives have made it easier to trade the assets without the risk. It allows one to trade without owning the asset. The popularity of the derivatives will only grow as the demand increases.

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