The cryptocurrency industry has been waiting for this for a long time but has not received a solution until now. Now it is happening: Cryptocoin Insurance walked the talk and introduced an insurance company to the market + created an option exchange. What exactly was the industry waiting for? Why? How options and insurance are related and why is it very interesting? Let’s find it out right now.
The lack of large funds in the cryptocurrency market has been the talk of the town. Or, rather, there are a few, making deals and investing. However, this is just a drop in the ocean of possible potential – for example, hedge funds open up huge positions on commodity exchanges, bidding both for market rise and fall. At the same time, pension funds are trying to place the money of their investors with a lag of dozens of years in advance.
Nothing of this can be found today in the situation with tokens. There are several reasons, and one of the main reasons is the lack of liquidity, coupled with the lack of the ability to insure risks. Of course, the fund can buy some coins in bulk, but it makes this purchase entirely at their own peril and risk. If there is a need to quickly eliminate this position – for example, due to a fall in prices, there will be huge losses because of the lack of buyers for this large volume.
An attentive reader may argue that the liquidation of a large position in the stock market leads to the same huge losses due to slippage. And this is right! However, the stock market has a tool to limit these losses or avoid them, and everyone uses it. Of course, this is about options.
In other words, large funds do not get rid of their position at any price but instead insure their potential loss in advance by buying options. Further, the fund does not need to eliminate the position at all – especially since it bids for its further growth after correction, on the opposite.
There is no such an option in the cryptocurrency market at the moment. In other words, the lack of risk insurance options leads to the absence of large funds on the market. It turns out a vicious circle.
Cryptocoin Insurance solves the problem fundamentally by creating an insurance company and an options exchange.
Why not just an exchange? To answer the question, one needs to delve into the nuances of the cryptocurrency market. Suppose a company sold insurance to a fund against a specific coin fall by 30% during a month. There are moments when the entire market moves only in one direction several times a year, and a large number of insurance claims arise at the same time.
This insurance company would simply buy an option or futures in the classic market to insure their own risks in case of the developments above. However, there is simply no such opportunity in the cryptocurrency market today! It’s all the same vicious circle.
That is why the business model provides for both the opening of an insurance company and the creation of its own option exchange. Cryptocoin Insurance hedges the repackaging of insurance risks through the purchase of options on it. The sellers of these option are speculators seeking to make a profit “here and now.”
Perfect time for launch
As is known, it is extremely important for any new idea, niche, or business to start at the right time. Back one year ago, the option exchange would have been lost in a series of other projects, and the very need for it would be put by the crypto community into question.
The market was growing without stopping, and it seemed that there would be no end to it. The question of when the Bitcoin price reaches $1 mln was seriously discussed (did you notice that nobody has talked about this for a long time?). That is, the need for an option exchange, which insures the risks of fall, was of little relevance. Those funds massively planned to enter the market without any insurance (most of them were lucky to be not in time).
The situation is completely turned upside down today. For hardcore optimists, it became clear what risks the cryptocurrency market carries. Nobody doubts the need to have tools to minimize these risks on hand today.
What are the volumes of risks involved?
The daily turnover of cryptocurrency exchanges amounts to $10-15 bln. The size of the options market for commodities and stocks, depending on the country, is 1-5% of the market for the underlying asset. As such, we can estimate the potential daily volume of the options market for major cryptocurrencies as $50-250 mln.
Another factor in the growth of volumes is the ability to carry out “short sales” through the purchase of an option for the market fall. An asset that does not exist in the physical form (is leased by a broker) can be easily sold on the stock market or oil futures, but cannot be sold on the cryptocurrency market. However, there are a huge number of speculators on the market who bib for the fall of a particular coin. Thanks to the options, these players are able to use sales.
The Cryptocoin Insurance ICO is launching on November 1 and ending on December 27. The company is going to launch an options exchange in six months and start selling insurance. We will closely monitor it in the future.
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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency and read our full disclaimer.