At this stage in the life of cryptocurrencies and blockchain based digital assets, it’s perhaps cliché to say high volatility is preventing mass adoption. This is the stage of finding answers to the question of how to stabilize digital assets. Bibox, a digital assets exchange that also has artificial intelligence enabled features, has some answers to this question.
Bibox has identified the lack of an array of trading strategies and derivatives in the cryptocurrency space as one of the biggest reasons why the crypto market hasn’t achieved the level of stability that would attract mainstream adoption. In every established market — the stock, currency and commodity markets, for instance — investors have access to an array of strategies and derivatives for trading the underlying asset. Traditional traders/investors have access to strategies such as margin trading, conditional orders, pre-planned orders, time-weighted average price strategy, etc. On the derivative side of things, traders/investors can short an asset, buy options, futures, etc. These different derivatives and trading strategies altogether allow traders and investors to play the market in accordance with their view of the market.
Since these options do not exist in the cryptocurrency space, the benefits that come with them do not exist as well. Here are some of those benefits.
Former U.S. SEC economist Stewart Mayhew, in a 1999 study titled “The Impact of Derivatives on Cash Markets: What Have We Learned?” found that introduction of derivatives in markets — both developed and undeveloped — tend to improve the liquidity and stabilize the price of the underlying asset.
This makes sense because the availability of derivatives literally invites different market players to bet in accordance with their perspective of the underlying asset. Some or most of the participants that get involved based on the availability of derivatives may never get involved if the only way to play the underlying asset is by taking long positions. The increased funds that the availability of derivatives brings to the market foster higher liquidity and hence price stability.
Moreover, with derivatives, especially in a developing market, investors hedge some of the risks they have acquired.
Historically, there has been a bias against traders, a bias borne out of the perception that traders only want to profit from market movements without necessarily believing in the underlying asset. But research has shown that both traders and investors are important for any market to function properly. At the minimum,the activity of traders increases the liquidity of an asset.
Hence, while there’s a need for investors who would use different trading tools to invest over the long-term, it is also important to create a market that adequately accommodates traders. The best way to understand how to make the crypto market accommodating for traders is by understanding the kind of traders there are and then incorporating trading tools and strategies that allow them to trade accordingly into exchanges. Some types of trading strategies include scalping, momentum trading, technical trading, fundamental trading and swing trading.
Bibox believes that the availability of different trading tools and strategies is important to attract more and bigger players to the crypto space. Long-term, the reduced volatility that the increased trading options bring will help strengthen the use case of cryptocurrency for the exchange of value.
Digital asset exchanges need to be at the forefront of bringing increased options to investors and traders. Bibox has studied how the traditional market works and has created an exchange/trading platform that allows traders to trade the way they want. Here are few tools that the Bibox digital assets exchange features:
Leverage Trading, Security Lending and Contract Trading: The Bibox platform allows traders to trade on margin if they meet the requirement set. Traders can also short the crypto market through Bibox’s security lending features. Traditional institutional traders usually employ security lending to short sell an asset. Traders can also use the contract trading feature on the Bibox platform to buy cryptocurrencies future contracts.
The Bibox exchange has an A.I. capability that allows traders to use features including:
Planned orders, which allows tradersto buy or sell a digital asset at a preset price.
Conditional orders, which allows traders to go beyond buying or selling at a preset price to set specific conditions for an order. For instance, a trader can set a conditional order to buy a digital asset if its prices reach a certain percentage of the 24-hour high or low.
Preventing large orders from unfairly moving the market through Iceberg orders and time-weighted average price trading.
The Bibox system also features the stop loss/stop gain features that most traditional exchanges have.
Bibox is built on the understanding that markets function properly only when they’re double-sided and hence has built a platform that has taken single sidedness off the crypto market through several innovative products and tools.