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Crypto Derivatives: A Growing Market

According to CryptoCompare, derivatives volume soared by 76.1% to $2.04 trillion, the largest increase since January 2021 when it rose by 114%. Notably, derivatives trading now constitutes 70.3% of the entire crypto market, up from 68% in December. This surge coincided with substantial gains in major cryptocurrencies, including Bitcoin (BTC) and Ether (ETH), which saw increases of 40% and 32% in January.  Let’s get a clear insight on the same starting from square one.

What are Crypto Derivatives?

A crypto derivative is an investment vehicle, like a ‘perpetual futures’ contract, that derives its value from an underlying cryptocurrency or digital asset. For instance, numerous perpetual futures contracts are linked to Bitcoin. Derivatives are essentially agreements involving two or more parties. In the world of crypto markets, the most prevalent types of derivatives are perpetual futures, while traditional futures and options are less commonly used.

Crypto Derivatives’ Growth in 2023

Cryptocurrency derivatives are poised for substantial growth in 2023, driven by the expanding landscape of DeFi-related infrastructure and the entry of credible professional intermediaries. This upward trajectory not only signals a broader adoption of crypto derivatives but also highlights their increasing significance within the financial ecosystem.

To comprehend the burgeoning popularity of crypto derivatives, it’s crucial to delve into the reasons that have traditionally made derivatives a preferred choice in the world of finance over spot markets. These rationales encompass the potential for capital leverage, tax advantages stemming from their treatment as long-term capital gains, and their instrumental role in mitigating the risks associated with unpredictable price fluctuations.

As institutional players step into the crypto arena, a noticeable reduction in market volatility ensues, rendering derivatives an even more efficient means of financial management. Furthermore, as an increasing number of institutions incorporate cryptocurrencies into their asset portfolios, derivative instruments emerge as indispensable tools for shielding against short-term volatility and preserving the stability of investments.

Exploring the Growth Factors

The cryptocurrency market has witnessed phenomenal growth, accompanied by a surge in crypto futures and derivatives trading. This article delves into this thriving domain, examining the factors fueling its rapid ascent and the key players in the field.

Cryptocurrency derivatives trading has seen an astounding upswing in recent months. According to CryptoCompare, derivatives volume in January skyrocketed by 76.1% from December, reaching a staggering US $2.04 trillion. This surge marks the most significant percentage increase since January 2021 when volume spiked by 114%.

The rise in trading activity has coincided with substantial gains in the world’s leading cryptocurrencies. Bitcoin (BTC) and Ether (ETH) saw remarkable increases of 40% and 32%, respectively, in January. Notably, CryptoCompare’s report attributes this growth primarily to speculation in the derivatives market rather than the accumulation of assets in the spot market.

Note: Today, derivatives account for a remarkable 70.3% of the entire cryptocurrency market, up from 68% in December. This shift underscores the growing popularity of these sophisticated trading instruments.

The Driving Forces

Several key factors are propelling the rapid expansion of crypto futures and derivatives trading. One of the primary drivers is the increasing sophistication of cryptocurrency traders who are seeking advanced strategies and tools to capitalise on market opportunities.

Additionally, the burgeoning interest in Decentralised Finance (DeFi) has led to the creation of more intricate financial products, such as options and perpetual swaps. These products have further fueled the growth of the crypto derivatives market.

Furthermore, the overall bullish sentiment in the cryptocurrency market, coupled with the growing acceptance of digital assets by institutional financiers, has contributed to the soaring demand for futures and derivatives trading.

Navigating Risks and Challenges

While the growth of crypto futures and derivatives presents enticing opportunities for traders, it’s crucial to acknowledge the potential risks and challenges associated with these markets. One notable risk is the high levels of leverage offered by some exchanges, which can lead to substantial losses if the market moves against a trader’s position.

Moreover, the complexity of these financial instruments can pose a significant hurdle, especially for less experienced traders. This underscores the critical importance of conducting thorough research and due diligence before venturing into the crypto futures and derivatives market.

Vakilsearch Experts’ Take on the Present Aspect

According to Vakilsearch experts, staying informed and conducting diligent research are pivotal for traders looking to navigate the complex world of crypto futures and derivatives successfully. With the market’s rapid expansion and maturation, informed decisions become increasingly critical.


In conclusion, the world of crypto futures and derivatives is expanding at an astonishing pace, offering traders new and exciting opportunities to thrive in the ever-evolving digital asset landscape. However, it’s imperative for traders to remain well-informed and exercise due diligence to ensure sound decision-making in this intricate form of trading. Get full information, expert guidance and legal services in the cryptocurrency domain through Vakilsearch.

Akash G Varadaraj