Popular crypto derivatives exchange FTX launches oil futures—here’s what this means for crypto
FTX, one of the fastest-growing crypto derivatives exchanges in the world, has announced the launch of crude oil futures that expire to the spot price of WTI crude oil plus $100 dollars. The fact that the product comes at a time when oil prices touched negative has instilled a new kind of confidence in the crypto industry, with many seeing this as proof of a maturing market.
Oil futures officially launch on FTX exchange
One of the fastest-growing crypto derivatives exchanges in the world has just introduced a brand new product to its offering—oil futures. FTX, which at one point overtook BitMEX in Ethereum open interest, has announced the launch of the new product on its official website and it couldn’t have picked a better time for it.
According to the company’s website, OIL contracts are futures that expire to the spot price of West Texas Intermediate (WTI) oil, plus $100. The additional money is added to each contract in case the spot price of oil goes negative, as has been the case with crude oil earlier this week.
Users will need to pass the exchange’s KYC level 1 in order to trade the OIL contracts, but trading will be limited only to residents outside the U.S., the U.K., the E.U, the U.A.E, Canada, Hong Kong, Singapore, Cambodia, Turkey, and China.
OIL contracts trading at plus $100 would imply roughly 5 times more trading fees since the fees will be charged on a $100+spot market rate of oil futures.
If OIL contracts are trading at $20 in traditional markets, it will trade at $120 on FTX. A 50% price rise would mean be equivalent to a roughly 8.3% rise on FTX Oil Contracts. Similarly, the downside will also be limited.
Negative oil prices leave room for speculation and show the true value of cryptocurrencies
The rapidly dropping prices of crude oil, which reached -$37 on Apr. 20, have just begun to wreak havoc on the global financial market. With no end in sight to the coronavirus pandemic and reduced demand for oil, it seems that both traders and refineries have lost faith in oil as a store of value. Gemini Exchange co-founder Cameron Winklevoss wrote on Twitter:
After today, oil can no longer be considered a reliable store of value. Your next best options are the U.S. dollar (gulp), gold (scarce), or Bitcoin (fixed).
— Cameron Winklevoss (@winklevoss) April 20, 2020
Bob Burnett, the chairman of Divvy Systems and Barefoot Mining, said that the crashing oil price showed what happens when something that is used as a store of value relies on consumption or fashionability. Bitcoin, he said, doesn’t share this characteristic.
The recent oil price crash exemplifies what can happen when something used as a store of value relies on either consumption of that good or the fashionability of that good as a major basis of its value. Art, wine, gold, silver and #oil share this characteristic. Not #Bitcoin.
— Bob Burnett (@boomer_btc) April 20, 2020
This seems to be the prevailing sentiment within the crypto industry, with many prominent industry voices seeing this as further proof of the intrinsic value cryptocurrencies such as Bitcoin have when compared to oil.
FTX’s oil futures couldn’t have come at a better time—the derivatives market has seen its volume skyrocket this year, which seems to have coincided with an increase in confidence in cryptocurrencies. Traders have been looking into more highly-leveraged products and seem to be eager to use a struggling oil market to make profits.
FTX CEO Sam Bankman-Fried said that the exchange was planning on launching tokens based on oil futures, similar to the exchange’s BULL and BEAR leveraged tokens. It’s still early to tell whether or not the futures will continue to see this much demand in the following months when its prices manage to stabilize. Nonetheless, the hype around the product certainly shows that the crypto market welcomes any innovation, even at the expense of other markets.