A derivative in which the underlying is a cryptocurrency such as Bitcoin and Ethereum. A cryptocurrency derivative contract is an agreement to buy or sell a cryptocurrency (or broadly a crypto asset) at a specific time in the future, either via physical or cash settlement. Bitcoin (abbreviation: BTC ) (as a coin) is the currency a decentralized peer-to-peer cryptocurrency that is supported by its users with no central authority or middlemen. Ethereum is a decentralized blockchain with smart contract functionality. Bitcoin, the first of its kind cryptocurrency is maintained by a proof of work (PoW) blockchain. Ether (abbreviation: ETH) is the native cryptocurrency of the platform.

Cryptocurrencies are digital assets. Unlike fiat currencies, cryptocurrencies are powered by peer-to-peer networks rather than issued and backed by central banks.

Cryptocurrency derivatives are traded by market participants either over the counter (OTC) or via crypto exchanges. An example is a cryptocurrency futures contract that is established between two market participants who take direction or bet on a cryptocurrency’s future price, granting them exposure to cryptocurrencies either with direct holdings or without purchasing them. Cryptocurrency futures are standard futures contracts, i.e., they have certain features defined by exchanges and portals where they trade. Traditionally, a futures contract is physically settled, where one party must deliver the underlying asset, while the other takes delivery. As digital assets, cryptocurrencies are settled monetarily. However, with the use of perpetual futures contracts, an expiration date is not a requirement for settlement.

Other examples of cryptocurrency derivatives include cryptocurrency options and perpetual swaps. The first cryptocurrency derivatives exchange was established in 2012, just three years after Bitcoin’s invention. It ignited investors’ interest in this style of trading and opened the door for user-friendly platforms, which in turn led to the introduction of the perpetual swap contracts, one of the most traded types of derivative contracts.

A cryptocurrency derivative is also known as a crypto derivative.