Which trading strategy - futures or spot - is more in line with the spirit of the crypto market in its current state?
HODL as a philosophy
The cryptocurrency market brought not only a new technological asset class that can change the world, but also allowed the masses to gain access to professional trading tools. Of these, options, futures and other derivatives have become the most used.
According to IntoTheBlock, the cumulative volume of bitcoin futures trading in December 2024 was nearly $1.8 trillion, while the dollar amount of transactions on the blockchain of the first cryptocurrency is at $1.7 trillion over the same period. Consequently, the real use of digital gold, expressed in fiat, is already below the level of the speculative component in the BTC market. By comparison, spot trading volumes are roughly six to seven times smaller than futures trading.
And if we take into account that about 20% of coins are in active constant turnover, we will get a conditional market multiplier of about 1 to 5, which also decreases over time. That is, only about 20% of the bitcoins actually moving provide liquidity for the entire market.
The futures market trend shows a constant increase from around 2019 with a slight dip after the FTX crash in 2022. Interestingly, the withdrawal of liquidity and the “locking up” of bitcoin is accompanied by the popularization of the HODL concept.
“Buy and hold” is not only an economic strategy, but an entire philosophy close to many investors. This concept eliminates the need to speculate on short-term volatility, which the market has been using as fuel for derivatives in recent years.
Buy physical bitcoin (spot) and hold it for as long as possible on your personal cold wallet - this is the essence of HODL. However, not everyone is using this approach, as evidenced by the huge volumes in the derivatives market.
Sadly, futures themselves have changed beyond recognition. Initially, this instrument was used as a contract for the delivery of goods at a predetermined cost at a certain time. They agreed in spring to deliver a ton of grain in the fall at X price - that's the whole futures.
But in today's crypto market, futures means leveraged trading to increase earning potential, when anyone can turn $10 into several thousand in a couple of clicks. However, we can't help but note that there is a downside: “On December 19, the volume of forced closed positions in the cryptocurrency market totaled $1.01 billion, including longs of $844 million.”
The only thing missing from stories like this is information about the average level of leverage involved in trading. It is a pity that exchanges do not publish such statistics anymore - it would be interesting to familiarize with it. Although some figures from the past have been preserved.
BitMEX exchange data for 2018 and 2019 shows that users' effective leverage was in the range of 20-30x. This is quite a lot for the period when spot and futures trading volumes were at a ratio of about 1 to 1.
On the highly volatile and yet most liquid bitcoin of the time, the concentration of effective betting with leverage of up to 50x is staggering. What to speak of meme tokens, which now go as far as 50x or even 75x leverage on the notional Binance.
Going back to the concept of HODL eliminating the gambling element, one can only speculate what the market and the price of bitcoin itself would be like if only spot coins were traded.
Of course, many will point out that, for example, miners need futures to plan their business processes, and this is a fair point. However, these kinds of tools are interesting and useful only for professional traders, who are very few in the total mass of users.
Almost 100 years ago, analysts already came to the conclusion that even without futures, only on spot trading one can lose a fortune by succumbing to the notorious volatility. Human emotions and temptations like greed and fear have hardly changed over the years.
“I would go broke if I were confused and distracted by minor market changes. Real movements do not end the day they began,” Jesse Livermore wrote in his 1940 book, ”How to Trade Stocks.”
Why spot trading is all about spot trading
The debate between spot and futures trading is the difference between investment and speculative activity. When a market participant plans to invest in a promising area that provides value over the long term, he will not use leverage. He doesn't need short position opportunities or any derivatives.
On the other hand, a futures trader is not interested in the prospects of a project or an asset as a whole - what matters is price movement and volatility, from which he can profit.
Following this logic, we are dealing with two completely different types of people. Some remain conservative market participants who accept the value of personal ownership, while others follow new trends like the shearing economy, where personal ownership may not even exist - everything is rented for a while and without concern for the future.
