One of the main reasons institutional and professional investors have yet to adopt Bitcoin is the products offered to them up until recently were primitive and geared more towards retail traders. This is especially true for those trading Bitcoin derivatives, which have seen massive growth in volumes over the last year, rising from less than 5% to almost 35%. Most of this volume is linked to CME Bitcoin futures and Bitmex and I would assume that typical retail crypto traders don’t touch the former and lose a lot of money in the latter.
The problem with the existing derivatives exchanges and futures is that the product is lacking. Take for example Bitmex’s Perpetual Swap contract, it heavily incentivizes makers with negative fees and heavily penalizes takers. With 100x leverage the taker pays 7.5% fees to enter a trade, while the maker earns 3%. This is an extreme example, as high leverage trades on Bitmex are near stupid and risky due to their liquidation rules.
Additionally, simply holding a trade open is overly expensive, as funding rates average around 60% yearly for longs and topped over 300% during the peak mania phase in 2017/18. Swaps make for good short term gambling when prices are moving, no one cares… Volatilty! Hooray! Those days have passed and Bitcoin price volatility has yet again returned to some of the lowest levels on record.
Spot prices are also highly manipulated in low liquidity environments. It only takes a few thousands Bitcoin sold at market to move price 5-10%. Market makers and traders know exactly where the liquidation points are for 25-100x leverage and actively push prices towards those levels for good fills and to squeeze out the over-leveraged rekttraders.
Bitcoin futures provided by the CME have their own disadvantages. Most importantly, the market for them closes on Friday and only reopens Monday. While the market is closed prices are much more susceptible to manipulation, as the futures contracts helps reduce overall volatility. Companies and individuals are denied access to this powerful hedging instrument because of the trading rules of the American national markets. The other issue is that CME futures are cash settled. When the future expires, a corresponding cash amount is transferred to one’s account. Many funds and investors want their returns and holdings to be denominated in Bitcoin, not dollars and they also want to hold the digital asset over the weekend when regulated markets are closed.
CoinFLEX solves both of these problems with their physically delivered futures product and exchange. In the podcast interview I did with CEO Mark Lamb, he laid out the benefits of using CF’s futures product. Essentially, the future is geared with up to 20x leverage that has zero index or settlement risk, as when the future expires, the person holding a position will need to deliver or be delivered the corresponding amount of Bitcoin.
The term physically delivered is a rollover from more traditional types of futures such as oil, corn, wheat and gold. When you buy or sell one of these futures you are obligated to deliver the product to the counterparty in return for cash. So for example, if you sell 1 gold future, at expiration, you must deliver 100 troy oz of gold in return for dollars. Futures are important for commodity producers because they can reduce price volatility and lock in revenues.
This is the perfect option for miners and fund who want to denominate in Bitcoin. Miners can lock in future prices for their production and ensure profitability for their business. Right now Bitcoin is trading at 5230, if a miner expects price to decrease further, they can sell a futures for the associated amount of Bitcoin they project to mine by a certain date. If the price goes down, they have hedged their returns and can budget accordingly. If they price goes up, well, they can either hedge or ensure delivery at a price necessary to keep the business going.
The majority of miners are located in Asia and this is the market participants Mark and his team are focused on acquiring. Physically delivered futures are primarily created for producers, and Chinese miners will be some of their biggest clients.
Another user group of the exchange will be crypto fund managers and prop traders, looking to take advantage through trading. As a futures trader myself, I trade gold and other commodities with no intention of ever delivering the product. The leverage provided makes it worthwhile to trade an asset with significant potential returns. One benefit of using Coinflex though is that instead of settling for cash at expiration, traders can receive Bitcoin, excluding any slippage normally gained when transferring from cash to crypto.
As I laid out above, perpetual swaps are fee heavy to carry an extended period and CME futures are cash settled. With Coinflex futures, traders can more accurately base their returns in BTC and not suffer from any slippage by having to move back and forth between stablecoins and Bitcoin. Fees for Coinflex are fixed at .03% for both maker and taker. Eventually, Mark plans to release a Coinflex token to provide for discounted fees on the exchange.
When it comes to the technology powering Coinflex, they are powered by Trading Technologies, one of the best providers of professional grade futures trading software in the world. Every single futures prop trader that I know uses TT. It’s industry standard and its why Bitmex even went out of their way to integrate it just a few days ago. Mark told me that TT really believes in crypto trading and is making it a large part of their business in the future.
The beauty of physically delivered futures is that CoinFLEX will eventually start to offer futures for products further down the market cap rankings. Coins such as Stellar, Binance Coin, and others do not have the liquidity necessary to create a cash settled market. But with CoinFLEX, futures for lower liquidity coins are more easily offered, as the seller only needs to deliver the tokens/coins at expiry. Binance Coin was the example Mark brought up in the podcast, which he believed they could offer at 3x leverage.
Coinflex is based in the Seychelles and excludes US and OFAC prohibited countries from signing up. The US market isn’t too much of an issue for them, as the majority of derivatives trading occurs in Asia, specifically China.
If you are any sort of semi or professional trade you must check out CoinFLEX, click this link to sign up. This is the first fully functional financial product for Bitcoin and I’m pretty sure that it’s going to revolutionize crypto trading going forward.
CoinFLEX website - www.coinflex.com
Telegram (EN) - https://t.me/coinflex_EN