Director of Global operations for MXC exchange, one of the largest digital asset exchanges in Asia.
The concept of trading cryptocurrencies goes well beyond just buying and selling Bitcoin. Since the inception of futures, perpetuals, derivatives, and leveraged ETFs, the playing field has expanded significantly.
Especially this latter type of investment vehicle appears to be noting a hefty increase in momentum. I expect this to be a mere sign of what is yet to come for the industry as a whole.
When the value of Bitcoin rises, demand for trading cryptocurrencies is often bound to increase accordingly. In recent weeks, there has been plenty of volume across centralized and decentralized exchanges, confirming the market is attracting ample attention. For DEXes, there is nearly $5 billion in trading volume over the past week. Looking at the past month, over $20.37 billion in volume was recorded.
However, it is crucial to look beyond just the direct trading of assets. Many investors seek exposure to cryptocurrencies through alternative vehicles, many of which note an increase in trading volume as well.
At this time, there are a few investment vehicles that don't involve physically owning any cryptocurrency. They will provide access to the overall market momentum, which is what investors want. Traditional options include futures and derivatives. Futures contracts are simple vehicles that cater to people who seek low-risk exposure to volatile markets. Obtaining them can be done through a variety of platforms. When Bitcoin turns bullish, as it has for weeks, futures trading tends to gain popularity.
The same goes for perpetual contracts, although they work slightly differently. Through a perpetual contract, users can enhance their market position by leveraging it.
Although this approach can pave the way for stronger gains, it will equally incur much steeper losses. Chasing the Bitcoin top is, in my opinion, always a bad idea. I'm not saying that because I believe Bitcoin has reached its peak. It is far too easy to lose money for novice investors who don't conduct the necessary market research.
Furthermore, it is important to note perpetual contracts don't necessarily come with an expiry date. This approach makes it easier to buy and sell contracts, but it can also offer a false sense of security.
Buying a perpetual contract and "forgetting about it" can quickly wreck a portfolio. Investing in bitcoin or other cryptocurrencies through perpetual contracts requires a different mindset and constant monitoring of the market to be effective. For newcomers and smaller investors, this can act as a death trap.
It is no secret that a proper Bitcoin ETF on a major trading platform outside of the cryptocurrency industry remains an unfulfilled dream. Regulators are concerned over the position Bitcoin is in, which is why the SEC has rejected all Bitcoin ETF applications to date.
For institutional traders, this makes the market a bit more difficult to access. At the same time, they can easily leverage OTC trading and dark pools to suit their needs.
Until a proper ETF comes to market, there are alternative vehicles to be explored. One option I personally favor is the leveraged ETF. Traditional market participants may know this vehicle as a way to amplify the returns of an underlying index. The position can be leveraged up to 3:1 for maximum exposure.
A leveraged cryptocurrency ETF uses the same method. Underlying tokens of the currency are used - Bitcoin, Ethereum, XRP, Cardano - and positions can be amplified. If the underlying crypto asset goes up by 5%, investors with 3x Long Bitcoin ETF will see 15% credited to their portfolio.
A rather simple, yet incredibly powerful and efficient way of speculating on cryptocurrency prices.
Contrary to perpetual contracts, a leveraged cryptocurrency ETF is mainly used in the short-term. Those who actively want to play the market can use this vehicle to its full extent and reap the rewards accordingly. Going long or short at the right time - especially in cryptocurrency markets - can prove to be very lucrative.
The appeal of leveraged cryptocurrency ETFs has not gone by unnoticed. In recent times, I have seen numerous platforms that provide exposure to this type of vehicle. FTX is a rising star among cryptocurrency trading platforms. It provides BULL, BEAR, HEDGE, and HALF contracts for individual tokens. Traders can also bet on or against the entire altcoin index, for example. The company has a growing collection of leveraged tokens to trade. This trend is likely to continue for the foreseeable future.
Leveraged ETF products were introduced by MXC Exchange almost a year ago, and differ from other products on the market. There is no liquidation for leveraged positions through its re-balancing mechanism. Additionally, it has up to 5x leveraged ETFs for certain currencies such as Bitcoin and XRP. This has resulted in over $400 million in daily trading volume across 78 different tokens. Furthermore, they added a Grayscale Portfolio Index last week.
The world's leading cryptocurrency exchange, Binance, is no stranger to leveraged tokens either. It too provides exposure to different assets and markets by letting users leverage a bullish or bearish stance. Although its list of supported tokens is relatively limited, there is a genuine interest in these vehicles. As exchanges and trading platforms focus on these vehicles, it will become easier for everyday people to expose themselves to cryptocurrencies.
Even though cryptocurrencies have often been considered to be a "fad", the industry has grown and evolved over time. This is apparent when looking at the market values, but also where the trading vehicles are concerned. Lowering the barriers of entry to this industry remains a top priority. In my opinion, things are heading in the right direction, but there is room for further progress.
Although I still hope to see an official Bitcoin ETF hit the market one day, leveraged ETFs can serve as a worthwhile alternative. Bitcoin is on the cusp of hitting a new all-time high value without an official ETF on a major market. Even if this latter situation doesn't change, I still expect the value of Bitcoin and other top cryptocurrencies to keep rising to new highs over time.
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