![[거래소 톺아보기] ②”Revenue on the downside” Domestic leveraged products](http://www.coindeskkorea.com/news/photo/202102/72693_10263_3937.jpg "[거래소 톺아보기] ②”Revenue on the downside” Domestic leveraged products")
Derivatives are contracts or financial instruments whose value is derived from the value of the underlying instrument. You don’t have to own the asset yourself, and you can make a profit even when the price of the asset falls. Although the price volatility is relatively large, it is an attractive tool for investors seeking to diversify their portfolio.
Leverage effect token listed on domestic exchanges
Last month, Huobi Korea released BTC*(-1) tokens and ETH*(-1) tokens, which are exchange traded products (ETPs) that reverse the 24-hour price volatility of Bitcoin and Ethereum. This product is designed to increase the net value of each token by 1% for each 1% drop in the price of Bitcoin and Ethereum listed on Huobi Global’s USDT (Tether) market.
Among the domestic cryptocurrency exchanges, GoPax officially introduced a token with a structure similar to that of derivatives. Gopax listed on the pro market in August 2019 a’hedge token’ designed to follow -1 times the volatility of the underlying cryptocurrency price. Currently, there are 5 types of hedging tokens based on price, including Bitcoin, Ethereum, Ripple, Bitcoin Cash, and EOS in the GoPax Pro Market.
In April 2020, Gopax also listed’BULL Token’ and’BEAR Token’ on the pro market, following 3 times and -3 times the volatility of cryptocurrency prices. If the price of a cryptocurrency rises or falls by 1x, you can make up to 3 times each.
Currently, GoPax Pro Market includes Bitcoin, Ethereum, Ripple, Bitcoin Cash, EOS, Stellar Lumen, Chainlink, Ada, Litecoin, Zcash, Algorand, Cosmos, etc. 24 species are listed.
“Monetization is needed even in downside markets”
Both Huobi Korea and Gopax explained, “We have also introduced products listed on overseas exchanges in Korea so that domestic investors can make profits even in the declining cryptocurrency market.” The ETP tokens listed on Huobi Korea were created by Huobi Global, a Chinese exchange, and the Hedge Token and Bull and Bear tokens listed on GoPax were created by FTX, a derivatives exchange based in Antigua and Barbuda in the Caribbean.
Currently, only two domestic cryptocurrency exchanges are offering similar derivatives based on cryptocurrency prices, Huobi Korea and GoPax. Among the four major cryptocurrency exchanges such as Bithumb, Upbit, Coinone, and Kobit, there are no tokens that can be classified as’similar derivatives’ listed.
However, there are exchanges with cryptocurrency price indexes that can be used as the basis for future derivatives. In May 2018, Dunamu, which operates the cryptocurrency Upbit, introduced the digital asset (cryptocurrency) index’UBCI (Upbit Cryptocurrency Index)’ for the first time among domestic exchanges.
Dunamu’s quantitative analysis team, who created UBCI, said, “We plan to cooperate with the development of various financial products based on digital assets in line with the movement of the institutional sector,” through press releases in the past. However, as of February 2021, no specific plan has been made.
Bithumb has launched cryptocurrency price indices such as the Bithumb Market Index (BTMI) and the Bithumb Altcoin Index (BTAI), which indicate the price trend of cryptocurrency listed on its platform in 2018. However, Bithumb has not yet officially mentioned plans to develop and release investment products linked to the cryptocurrency price index.
“Can I do it?” Exchanges hesitating
Officials in the domestic cryptocurrency industry cited the regulatory void as the reason why exchanges could not readily introduce similar products, not derivatives. Currently, the Capital Markets Act does not recognize cryptocurrencies such as bitcoin as an underlying asset for derivatives.
Korea Exchange Chairman Son Byung-du said at a New Year’s press conference on January 26, “It is premature to consider it as an underlying asset for derivatives in a situation where virtual assets (cryptocurrency) such as bitcoin are not incorporated into the institutional sector.”
An official from a domestic cryptocurrency exchange said, “There is clearly a role that leveraged products can play as a risk hedging tool (in a downturn),” he said. “As regulatory authorities still view cryptocurrency as a target for speculation or gambling, the price was leveraged. It is true that it is difficult to put out a product quickly.”
Another exchange official said, “(Tokens listed on Huobi Korea and Gopax) appear to be a kind of margin commodity tokenization,” and “Because there may be legal risks, we do not consider the release of derivatives as a subject for immediate review. “I have.”
There must be domestic demand
Although it is not a situation in which exchanges can actively launch, it is believed that domestic investor demand for products with leverage effect is not small. Overseas exchanges such as Binance, FTX, BitMEX, and Vibit are attracting domestic users by operating Korean websites and customer services, and creating communication channels on YouTube, Telegram, and blogs. These exchanges offer up to 100x leverage depending on the product. FTX and Bybit’s official Korean Telegram group has about 1,000 and 4,000 people, respectively.
According to CoinMarketCap data as of the 3rd, the trading volume of hedge tokens, bull, and bear tokens accounts for about 20% of the total trading volume of GoPax. This means that a little more trading volume is coming out through leveraged products than Ethereum (ETH), the second largest (18%) trading volume in GoPax. For small and medium-sized exchanges that have not yet been issued with real-name deposit and withdrawal accounts from banks, there is room to judge that a strategy that differentiates them from large exchanges with leverage products reflecting investor demand is effective.
Investor protection device required
Some point out that investor protection is necessary because the expected profits and losses are also large depending on the leverage ratio.
In January 2020, Japan revised the Financial Products Act and strengthened regulations by lowering the limit on cryptocurrency credit transaction leverage from 4 times to 2 times. The reason was that the volatility of cryptocurrency, the underlying asset of derivatives, was too large to encourage speculation. Futures exchange BitMEX stopped serving Japanese residents in May 2020.
An official from a domestic exchange said, “Like the stock market, it is worth considering how to require prior education for cryptocurrency derivatives investors.” Like the derivative-qualified individual investor system first introduced in the domestic stock market in 2014, it is necessary to complete training and simulation transactions for a certain amount of time or longer. However, in a situation where the government does not recognize cryptocurrency as a financial asset, it has no choice but to leave the exchanges’ autonomy to educate investors.
Some point out that in order for cryptocurrency to be used as an underlying asset for derivatives, the price volatility problem must be resolved in the end. Hong Ki-hoon, a professor at Hongik University Business School, explained, “To become an underlying asset of a derivative, it is necessary to have the value stability and predictability to calculate the value of the derivative.” He added, “Cryptocurrencies such as Bitcoin are highly volatile and have a small market size compared to traditional assets, so there is also a risk of manipulation.”
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