Crypto exchanges offer BTC(Bitcoin), and USDT(Tether) settled futures contracts, but which one is better for the average traders?
In 2016, the major cryptocurrency exchange BitMEX introduced its Bitcoin (BTC) perpetual future market and created a new cryptocurrency traders’ model. While BitMEX was not the first exchange platform to launch Bitcoin-settled inverse swaps, it offered a wider range of investors with accessibility and liquidity.
However, in the present year, Tether (USDT) settled contracts are quickly becoming applicable and have attained a great deal of popularity. It enabled the estimation of gains, losses and the required margin by retail investors using USDT contracts, but they also face disadvantages.
USDT(Tether) Settled Contracts Are Risky But Easily Handled
Future settled contracts of USDT are easier to manage because this product is not affected by BTC price and the returns are linear. There is no need to purchase BTC at any time for the people willing to short the futures contracts, but there are charges to hold the positions open.
This arrangement does not require an active hedge to secure the collateral exposure so that retail traders would have a better option.
It should be noted that the long-term status carrying of any stablecoins poses an embedded danger, which rises when third parties use custody services. It is one factor why stakers earn more than 11% APY on deposits in stablecoin.
It also plays a huge role in deciding whether an investor estimate returns in the BTC or Fiat. Arbitrage desks and market makers appear to favour USDT (Tether) contracts because they are either staking or holding low-risk cash.
On the other hand, retail investors usually keep BTC or turn to altcoins that are more lucrative than fixed APYs. So, USDT-settled future contracts are gaining more popularity by becoming the preferred tool of experienced traders.
Why Are The BTC Settled Contracts Good For Professional Traders?
In this case, the purchaser (long) and the seller (short) are obligated to deposit Bitcoin as a margin, instead of depending on USDT margins. Also, there is no need to use stablecoins for trading coin-margined contracts. Consequently, there is less risk of collateral.
However, if we look at the negative aspect when the BTC price decreases, the collateral in USD falls too. This effect is because the contracts are charged in USD. Well, for the future position, the total quantity is in contract quantity always.
It is known as the non-linear nature of inverse Future because when the BTC price falls, the buyer suffers more losses. The difference increases as the reference price drop from the original position.