Crypto derivatives primarily mean the secondary contracts or financial tools that derive their value from a primary underlying asset. The primary asset could be any cryptocurrency such as Bitcoin. Lets understand Crypto Derivatives trading deeply and its difference with crypto trading with an example.
Assume there is an investor who invests in Bitcoin. The investor can make money from the investment only when the price of the bitcoin goes above the price at which he first purchased the bitcoin. If the price goes down below the purchase price, then the investor will incur loss. But when it comes to crypto derivative trading, the trading allows the investors to trade contracts or commodities which are linked to a primary asset and the value of such trade is decided by calculating the value of the primary asset. In this type of trade, the investors don’t actually posses bitcoins but trade the derivatives that are linked to bitcoins.
Goldman Sachs integration with FTX for Crypto Derivative Trading.
Goldman Sachs has been rumored to be in talks with FTX ( The largest Cryptocurrency exchange in the world) to facilitate the trading for crypto derivatives. Goldman Sachs plans to offer trading of crypto derivatives by leveraging some of its own derivative tools and services.
FTX US, a subsidiary of FTX already is in action in offering brokerage services for its derivatives. This kind of offering will eventually help FTX to handle collateral and marginal requirements internally without being dependent on “Future Commission Merchants.”
The Backlash from CFTC.
The US’s Commodity Futures Trading Commission (CFTC) is not in support of the integration as it feels that FTX having an internal body to take care of the requirements of crypto derivatives will ensure that the power vests in the hand of few and results in a monopolistic domination.
To argue on CFTC’s comments, FTX said that an internal brokerage model would help the crypto market to be more stable and freer. There have been different viewpoints from different critiques about internal brokerage for trading crypto derivatives.
From one side of the coin CFTC warns that, having an internal brokerage system could lead to monopolistic domination of the market. While on the other side of the coin, FTX argues that internal brokerage system will actually benefit the market and make the market more stable and efficient.
Whether CFTC is accurate in its warning or whether FTX’s internal brokerage system will stabilize the market, only time will tell!