Bitcoin Derivatives & ETFs Gaining Ground in 2023

Bitcoin (BTC), the cryptocurrency with the largest capitalization value, has recently surged ahead in terms of achieving a mature marketplace where investors, speculators, and traders can use derivatives and ETFs. While exchange traded funds, or ETFs, are technically not derivative trading instruments, many people view them as such. The recent court decision about Grayscale’s BTC offering has already had a positive impact on the general outlook for the solidity of the crypto market in general and Bitcoin’s fortunes in particular.

A recent U.S. Court of Appeals decision has all but secured bitcoin’s place among the most popular ETFs available to everyday investors. What are the relevant details about that decision, and what is the overall outlook for bitcoin derivatives, like options, CFDs (contracts for difference), and futures, for the near term? Consider the following facts about all the recent BTC derivative and ETF advances.

In late August, a D.C. Circuit COA (court of appeals) delivered a decision that will likely go down in financial history. The ruling opened the way for Grayscale, a company that currently runs the popular GBT (Grayscale Bitcoin Trust), to convert the trust into a standard ETF. The move will almost certainly usher in an era in which the world’s most traded cryptocurrency becomes part of the ever-growing ETF marketplace. The decision immediately led to spot price increases for all the top cryptos.

CFDs are very similar to futures, but there are several important differences in the way people use them when playing the crypto markets. BTC enthusiasts can purchase any number of contracts for difference via a brokerage platform that sells the instruments. Most of the activity is based on shorter time spans than futures contracts. Likewise, account holders who opt for CFDs can use financial leverage to magnify the potential profits or losses in each position. That’s just one reason bitcoin CFDs trading has become so popular in the past decade.

The Grayscale decision by the Court of Appeals reversed a lower court ruling that had sought to stop the company from converting its trust into an ETF. Once Grayscale sets up the new fund and begins selling BTC-based ETF shares, consumers will gain access to the world’s first-ever ETF that deals directly with the spot price of bitcoin. As is the case with so many legal decisions of such magnitude, the recent decision will likely have a cascading effect on the marketplace for crypto ETFs. There are already several firms that plan to sell Bitcoin-based fund shares. Fidelity and BlackRock are just two of the larger players in the market who have indicated they are ready to go with SEC applications for crypto ETF funds.

ETFs are not derivatives, but account holders will be able to gain exposure to the leading crypto asset without having to purchase it directly. In the case of Grayscale’s offering, stock exchanges will trade it just as if it were an equity share. However, those who want to make a purchase will have to go through their favorite brokerage, whose owners will be the owners and holders of the Bitcoin assets. There’s a very good chance that the court decision will give momentum to even more institutional buy in of cryptocurrency assets, particularly the niche leaders like ethereum and BTC.

The Many Faces of Bitcoin’s Derivatives

In addition to the coming ETF offerings from major brokerage firms, BTC traders and investors have multiple ways to gain exposure to the highly volatile marketplace. Their choices include traditional futures contracts, put and call options, and CFDs, which are currently not available in the U.S. and a few other places. But it’s important for potential investors to know that CFDs are not only easy to buy and sell but also have a very low cost of entry to the otherwise complex and sometimes pricey crypto niche.

As a result of the court decision in the recent Grayscale case, the easiest way for individuals to gain exposure to the leading crypto without having to own the underlying asset is through ETFs and CFDs. As soon as online brokerage firms place the Grayscale Bitcoin ETF shares on their menus, account holders will have plenty of ways to get into derivative crypto assets. Many of the top brokers already offer futures and options for BTC investors, speculators, and traders.

Futures offer some of the same advantages as CFDs, but contract prices tend to be much longer. Plus, the cost of a single futures contract is now always accessible to average investors who need to monitor their spending. As for options, like calls and puts, anyone interested in them must do the buying and selling via a registered options exchange or broker who is connected with one.

Cryptorivatives Come With Pros & Cons

What some humorously call crypto-rivatives, or derivative contracts on cryptocurrency assets, have their own list of positives and negatives. Chief among the pros are the ease of market entry and the availability of leverage. In the recent past, many newcomers to the niche took part in spot trading to seek quick profits. But derivatives offer a less costly way to do the same thing, namely, speculate on spot prices without having to plunk down large sums on the underlying asset.

Additionally, many individuals who hold traditional portfolios of stocks and bonds can use crypto assets as a hedging tool to minimize their risk exposure. Using one asset to hedge against losses on another is an age-old tactic that offers people the chance to fine-tune the amount of risk within a given portfolio. Hedging is an excellent way to gain just the right amount of risk exposure based on prevailing market conditions.

On the downside, complex tax status and potentially high volatility are two of the main characteristics of all crypto-based financial instruments. It’s imperative for people to do their own in-depth research on CFDs, ETFs, options, futures, and all other forms of derivatives before putting capital at risk. As the new year approaches, large numbers of account holders will be reassessing their positions and exploring the enticing prospect of purchasing exchange traded fund shares on the world’s most watched cryptocurrency, bitcoin.

Brian Wallace

Brian Wallace is the Founder and President of NowSourcing, an industry leading content marketing agency that makes the world's ideas simple, visual, and influential. Brian has been named a Google Small Business Advisor for 2016-present, joined the SXSW Advisory Board in 2019-present and became an SMB Advisor for Lexmark in 2023. He is the lead organizer for The Innovate Summit scheduled for May 2024.

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