Crypto derivatives and ETFs 

The crypto-derivatives are financial products whose underlying asset is a cryptocurrency or token giving the buyer of the derivatives a right to the product or asset at a certain price. In the traditional stock market these derivatives have been used for a long time (more than 20 years) and now they are being used to be referred to cryptocurrencies becoming a very interesting option especially for those who do not want to invest directly in the cryptos.


Types of financial derivatives.

The typical financial derivative products are options, swaps and futures and have traditionally been used to speculate or cover possible losses or risks. These products are popular because they are based on standardized contracts with high liquidity.

Crypto-derivatives are already traded on traditional exchanges and are becoming increasingly important and popular, although they are highly volatile and risky products.

Currently the data on crypto-currency derivatives reflect that this market is having a good performance despite the global health and economic crisis so that the large funds of traditional financial market could be passed on to the crypto world using the bridge offered by derivatives between traditional finance and the crypto market.

A very significant data is the increase in the market volume of crypto-derivatives in the 1Q of 2020 to about $21 billion, assuming an average of 23 billion daily volume during that period. The following chart shows the trend of this huge growth of these crypto-derivative assets through 2019 and up to the first quarter of this year.


                                                        Fuente: TokenInsight

This increase represents a 314% in more than one year since January 2019.

Out of all this volume, the cryptocurrencies that have been used as underlying assets in derivatives contracts are mainly Bitcoin (BTC) with 78% of the volume, followed by Etherium (ETH) with 9% and EOS with 3%. The remaining 10% corresponds to other cryptos.

The most used crypto-derivatives trading platforms are Huobi DM, OKex, BitMex and Binance Futures in order of importance.

The reason for the success of crypto-derivatives, especially those using BTC as an underlying value, lies in their relative stability and adoption as a refuge value in times of upheaval and crisis.

The ETFs as financial productos

On the other hand, other financial products thar are a type of crypto-derivatives are called EFTs that stands for “Exchange Trade Funds” as listed Investments Funds, which are similar to listed shares but are referred to prices of other assets. This is another typical stock market financial product that enjoys great transparency, flexibility, liquidity and diversification, which also has the advantage of having lower commissions than any other investment funds. It is a financial product considered as derivatives that have been used in the last 20 years as an evolution of stock market diversification.

These types of financial derivatives have been referenced to multiple financial products such as bonds, currencies, shares, goods and even stock market indexes. Last year this type of traditional sub-market became the largest in the world in the USA.

For example, Bitcoin ETFs are financial assets that follow the BTC price, so buying this asset you would be gaining value if the BTC price goes up or losing value if it goes down and you would not have to buy BTCs at all. Thus many platforms can be linked to the prices of cryptocurrencies without having to integrate their technical complexities into their systems. This is a way that helps to integrate in the first place the crypto market to the traditional markets.


                                                       Source: criptotendencia

“The top crypto derivative product is therefore Bitcoins ETFs as it could not be any other way.”

The expert analysis details that BTC ETFs have more long-term risk than short-term risk even though BTC has a high long-term ROI (Return of Investment). The fact is that these financial derivatives referred to cryptocurrencies are much more sensitive to the ups and downs of the economy and times of global or regional crisis. 

The usual way for a crypto ETF to track the crypto prices of a specific crypto is buying and storing it and then dividing those crypto funds into the proportional shares of the ownership and allocating them to different investors in proportion.

It is even possible that a BTC ETF can be referred to the price of BTC futures or options which would be a derivative of another derivative creating even more complex but easy to manage links between the assets.

These products create links between the two big financial markets (crypto and traditional one) making them more connected and synchronized on one hand, and on the other hand, therefore more capable of transmitting distortions between them. These products are designed to give greater exposure of the crypto market to the traditional financial markets and bring them closer to traditional investors without having to deal with the complexities of having direct investments in cryptocurrencies. 

Initial phase of the Crypto ETFs from early 2019

Crypto ETFs are generally mixed financial products that are in their initial stages and only a few have been available since last year.

A positive aspect of BTC ETFs is that they do not need a BTC wallet to be stored and cannot be hacked, and the companies that issue them are regulated by the SEC (US Securities and Exchange Commission) or the Spanish CNMV.

Advantages of cryptocurrency ETFs comparing a direct purchase.

Below the advantages of BTC ETFs compared to buying them directly:

  • Obviously, it is easier for the traditional investor to buy BTC ETFs than to buy them directly, as buying cryptocurrencies represents a major psychological barrier.
  • Cryptocurrency exchanges do not usually have the legal backing of any national exchange or stock market.
  • Higher Technical - administrative simplification of operations. This results in lower costs and therefore lower commissions for the end user.
  • The BTC, until now is considered speculative with low adoption, since the traditional mentality of most investors still makes it a purely speculative residual value.

Obviously you can create ETFs linked to any cryptocurrency that is interesting when looking for short and long term returns, but the most common are those referred to the more classic cryptocurrencies such as Bitcoin (BTC), Etherium (ETH) and Bitcoin Cash (BCH), although we also find funds referred to Litecoin (LTC), Etherium Classic (ETC), Ripple (XPR) and Zcash (ZEC). The latter are offered by Grayscale Investments, which has a wide impact on the derivative submarket.

We have below a list of the most significant crypt-currency ETFs developed in the initial phase of this type of derivative financial product.



In conclusion, we can say that the regulation on cryptocurrencies is developing a lot in the USA, Europe and Asia, so this makes it easier to introduce crypto-derivatives in these big markets. Although as you can see in the table above there are still no crypto ETF funds that are SEC approved at the moment, although Grayscale Investments' activity has been very strong in the US financial market as it has bought most of the bitcoins mined from the 3rd BTC halving, for its GBTC (Bitcoin Investment Trust) ETF, so that its investors can have these derivative assets indexed to the BTC price.

“We continue to look forward to the crypto markets maturing much further so that they can soon be admitted into more and more jurisdictions in North America, Europe and Asia.”

The growth of financial crypto-derivatives showed here in this article can make this happen sooner than later with the benefits this may bring to the crypto market.