TIL the scale of bitcoin derivatives in 2020 (hence volatility): ~2T on 2B market activity. Jeepers!

--- Starting in late 2020, as shown in The Economist's graphic, the spot market in Bitcoin became dwarfed by the derivatives markets. In the last month $1.7T of Bitcoin futures traded on unregulated exchanges, and $6.4B on regulated exchanges. Compare this with the $1.8B of the spot market in the same month. ---

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onion2k 3 hours ago | parent [-]

Why would you expect the scale of the derivatives to be related to the scale of the spot market, especially if the derivatives are cash-settled futures? One is basically gambling on the price of BTC going up or down, and the other is trading the actual BTC, right?

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Turneyboy 2 hours ago | parent | next [-]

Well for one with a gigantic derivatives market compared to the underlying one it becomes relatively cheap to manipulate the underlying market.

If you can make a gigantic bet on the price going up and then buy a large amount of Bitcoin that moves the price up you can win from that. See the Jane street India derivatives market issue.

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rcxdude 28 minutes ago | parent | prev | next [-]

I dunno, ask India and Jane Street. That's the same basic situation: when the derivative market betting on the price going up or down is much larger than the market that actually sets that price, it's ripe for arbitrage/market manipulation by a player big enough to move the market (which one you think it is depends on whether you're one of the gamblers getting fleeced or the one taking their money).

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phonicwheel 3 hours ago | parent | prev [-]

How is trading the actual BTC not also gambling on the price of BTC going up or down?

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onion2k 3 hours ago | parent | next [-]

It's not really, but the difference is that I'm limited by the supply of BTC, and it requires that I actually have the money to make the 'bet' at the start. That restricts the size of the spot market.

If I'm buying futures I can enter into a contract that says "I'll buy a contract for 1BTC that says BTC is going to go from $88.5k to $98.5k in 1 year." I don't actually hand over any money. In a year's time, if BTC is now $100k the person who agreed on the contract gives me $10k. If it doesn't go up then I owe the seller $10k. The futures contract is settled in cash - no BTC is involved.

Right now though, I don't have a $88.5k to spend on BTC, so the spot market isn't an option. I probably could find $10k in a year's time so a bet on a BTC future might be viable. The actual derivative 'value' isn't real though. The only money changing hands is the delta of the change in value when the contract is settled.

(Caveat: I am a total noob at finance stuff so this could be quite wrong. One of the many reasons I will not be buying that futures contract. :) )

	▲	johnnienaked 2 hours ago \| parent [-]
		It's very wrong. Futures contracts on traditional exchanges have no counterparty risk and require the deposit of a significant amount of upfront capital as collateral. If the spot price of the underlying moves in either direction, debits or credits are made to and from each margin account and if you don't have the money to cover a margin call, the contract gets closed.

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SiempreViernes 3 hours ago | parent | prev [-]

You might buy BTC to actually spend it, say on paying a ransomware vendor.