Saturday, September 23, 2023

Why Perpetual Futures Are Becoming Crucial Leverage Tools For Crypto Traders

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Perpetual futures continue to dominate the crypto and Bitcoin market and now account for 92.4% of all futures trading volumes. This marks an improvement from 75% dominance in December 2020. Their low storage and delivery costs compared to other futures products is an important factor in this domination according to Glassnode analysts in their recent market analysis.

“Perpetual swaps more closely match spot index pricing, thus making it easier and more intuitive for traders to manage positions and leverage. Low storage and delivery costs associated with digital assets negate many of the benefits of calendar futures when compared to physical commodities. Calendar futures provide useful tools for hedging risks, and pricing future production and delivery costs for physical commodities, however, these costs approach zero for Bitcoin.”

The current open interest in perpetual futures – meaning the total number of contracts – is at 1.3% of Bitcoin market cap, which is approaching historical levels.    

The futures leverage ratio is also on the rise according to the analysts, which proves that more capital is flowing into perpetual swaps than calendar futures. The Glassnode analysts believe that the significant improvement in perpetual markets is a result of the overall maturation of Bitcoin derivatives markets over the years. However, futures trading volumes have fallen 59% since the start of 2021.  

Despite the increase in perpetual swap trades, more capital has been leaving Bitcoin markets as depicted by declining trading volumes. This is also depicted by declining on-chain settlement volumes according to the analysts. Currently, the Bitcoin network is settling between $5.5 billion and $7 billion per day which is 40% lower than between $5.5 billion to $11 billion per day seen during the bull market peaks. In other words, people are looking for higher capital returns away from Bitcoin and crypto markets.        




Perpetual futures or swaps are contracts that let traders speculate on the future price movements. They are cash-settled and the trader will collect a profit or loss equal to the difference between the trader’s bet and the actual Bitcoin or asset spot price at the closure of the contract. Perpetual futures are leveraged in that one can take a loan to multiply their capital trading positions. They, however, differ from other types of futures or derivatives in that they do not have a specific set duration when the contract expires and so can be held indefinitely.       

These futures are the most prolific types of derivative trading in crypto markets and day traders find them very useful whether shorting or longing Bitcoin and other cryptocurrencies either in a falling or rising market.


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