When I thought about what to write this week, I came up with the idea of writing about derivatives in cryptocurrencies. Soon after, the title above came to me, which indicates a huge innovation for the financial market.
But I will take the opportunity to talk about this topic in a broader way as well.
Cryptocurrency as an investment has been around for a while. Although there are still few who take risks in this market, the knowledge on the subject is spreading and becoming more and more consolidated.
Many agents in the traditional financial market have already understood the potential of this segment and are now looking at ways to structure themselves to include this in their investment portfolio.
Facts like that of Microstrategy, which was the first company listed on the Stock Exchange to put its cash in Bitcoin, or that of Tesla, which recently followed the same path, should be increasingly constant.
It is a movement that is beginning. As we say in the world of startups: it doesn't happen, until it does. For me, in 2021 we started the exponential phase of the process of adopting this technology.
I have seen countless interesting projects, whether in the world of DEFI (decentralized finance, in the acronym in English) or CEFI (centralized finance, where are the Exchange crypto, for example).
These projects, in addition to using new technologies, usually solve a problem. The case of the future of cryptocurrencies is one of them.
Usually, when we talk about futures, we are dealing with a derivative market with an end date. In the case of B3's future dollar, for example, there is a maturity on every 1st of each month.
This implies that if you want to continue with the position after it expires, you have to do what we call a rollover (buy what is winning and sell the longest, if your position is sold).
This implies control, organization, brokerage, spread paid and many other things that can even take advantage of the future in relation to the spot (spot contract), namely, the ease of leveraging.
What the Crypto Exchanges did to solve this was to create a perpetual future. Without maturity. At first, the idea seems intriguing. Perpetual future? And he is, in a way.
In practice, it ends up functioning as a future that wins every day. In order for the price of that future to be as close to the spot, there is an adjustment mechanism.
This mechanism means that there is an incentive for agents to sell the future if it is higher than the spot and the reverse, if the future is below the spot contract.
The advantages of this perpetual future for those who operate it are the possibility of achieving greater leverage in positions (some Exchanges even give 125x leverage in futures, whereas for the spot it does not exceed 25x), liquidity (in many moments greater than the spot market), lower transaction fees, no need to roll transactions, among others.
At the end of the day, it is very similar to a spot, only with all the advantages above.
Even thinking that you will not leverage, you will only buy 1x what you want, just the fact of having a lower transaction fee is already an incentive to be considered and can be cheaper even considering the margin required for this.
It is worth mentioning that any level of leverage can expose you to considerable losses and has to be used very sparingly, especially when we speak of very high levels, in which a small variation in the price of the asset can lead you to lose all the capital deposited in margin.
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