Get rich overnight or restart with one click! "Perpetual Contracts" are booming in the cryptocurrency circle

In the cryptocurrency market, known for its wild fluctuations, derivatives called "perpetual contracts" are rapidly taking center stage.

According to Wall Street News, the cryptocurrency market experienced a massive liquidation on Monday, with over $1.5 billion in long positions being forcibly closed, triggering the most severe flash crash in nearly a month. Although Bitcoin's price rebounded yesterday, mainstream coins like Ethereum are still consolidating at low levels, highlighting the significant impact of high-leverage trading on market stability.

(Bitcoin rebounded to around $114,000 yesterday)

Amidst the volatility, the "perpetual contract," a speculative tool that was primarily popular outside the United States, is accelerating its entry into the regulated U.S. market.

A perpetual contract is a special type of financial derivative characterized by the absence of an expiration date or strike price, allowing traders to hold positions indefinitely. Profits and losses are entirely dependent on the price movements of underlying assets like Bitcoin, similar to an option contract that can automatically roll over.

Mainstream cryptocurrency exchange Coinbase launched perpetual contract products for its U.S. retail customers this summer. Meanwhile, the Chicago Board Options Exchange Global Markets plans to introduce such contracts in November, marking the formal entry of Wall Street's mainstream institutions into this high-risk game.

The Appeal of "Perpetual Contracts"

The most attractive aspect of "perpetual contracts" is their extremely high leverage.

For example, a trader can open a long position in Bitcoin worth $5,000 with a $500 principal using 10x leverage. If the price of Bitcoin rises by 10%, their initial investment doubles, yielding a profit of $500.

However, the risk is equally matched with the reward; if the price of Bitcoin falls by 10%, their $500 principal will be completely liquidated, effectively "one-click restart."

To keep the contract price linked to the spot price, perpetual contracts introduce a "Funding Rate" mechanism.

Typically, when the contract price is higher than the spot price, traders holding long positions must regularly pay the funding rate to short sellers. This fee eats into the profits of the long side, while for the short side, it can become an additional source of income.

The popularity of perpetual contracts has exploded over the past year.

According to Adam Morgan McCarthy, head of research at analysis firm Kaiko, perpetual contracts currently account for about 68% of Bitcoin trading volume. During the bull market in which Bitcoin's price rose over 70% in the past year, traders seeking quick returns have flocked in large numbers.

Brokerages Compete in a New Arena

With the popularity of perpetual contracts, mainstream trading platforms are accelerating their introduction into the core market Coinbase has not only opened this product to U.S. retail customers, but its trading head Scott Shapiro also stated:

We do not intend to make the 10x leverage a permanent restriction; we hope to continuously push this boundary.

Other institutions are also quickly following suit:

• Brokerage Robinhood has begun offering related services to European retail traders.
• Cryptocurrency company Gemini even offers perpetual contract products with leverage of up to 100x.
• According to Cboe Global Markets' head of derivatives Catherine Clay, the exchange plans to officially launch perpetual contracts in November.

For platforms providing these trading options, this is undoubtedly a lucrative business.

Taking Robinhood as an example, its Q2 financial report shows that cryptocurrency and options trading contributed nearly 80% of trading revenue, while traditional stock trading accounted for only 12%. The booming trading has also propelled its stock price to soar over 200% this year, successfully entering the S&P 500 index this month [https://wallstreetcn.com/articles/3755061].

As with many speculative activities, it may be the market makers who are the real winners in this game