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Here are a couple of reasons why that can establish how the futures market affects the crypto trading market.
The initial rise can be attributed to a new opportunity or gateway into the crypto world. Most futures markets don’t need traders such as yourselves to own the underlying asset. You will merely predict the rise or fall, and the settlement will be done in cash once the transaction closes.
Hence with the opening of a futures market, everyone got excited since this was a new gateway for trading cryptocurrencies, and therefore there was a sharp increase in the prices.
This is a trait we see pretty often wherein every time, there’s something new and exciting in the world of crypto. We see numerous people jump on the bandwagon. The performance of the assets or the projects is impeccable in their initial run. With the futures market, it was no different.
After the first few days, we saw a decline in the prices. Here’s why: The pessimistic traders got a chance to speculate a decrease in the prices of Bitcoin. However, they had to wait for some time since in the futures market; you decide a price and a date in the future when the asset will be bought/sold.
As a result, more people chose to bet on the decrease considering the volatility of the market. This, in turn, affected the spot trading prices, and they fell. So the pessimistic speculation led to the decrease in the futures and the spot markets’ prices.
The price decline back then was gradual. This can be because the initial buzz was dying out. Post that phase, when futures trading of various digital assets became normal, the spot market dictated the futures market prices.
This is because with spot markets, the price keeps fluctuating and the trends on the spot market are primarily mapped and analyzed to predict prices in the future. Hence the spot trading market usually affects the futures market.
However, since the futures market has a higher volume traded per transaction, it is also a significant medium for people with larger volumes of crypto to conduct their trades. Their speculations might also significantly affect the spot market.
Thus, a decline in spot market prices often affects the futures market prices, but in some instances, the scenario flips, and the speculations of futures affect the prices of the spot.
*This article only represents the views of observers and does not constitute any investment advice.
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