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Understanding the term premium on cryptographic markets
The world of cryptocurrencies has experienced a significant increase in commercial activity over the past decade, many investors seeking to take advantage of the vast opportunities offered by this market. A key concept that played a crucial role in the formation of the cryptocurrency landscape is the “term premium”, which refers to the propagation between the price of an asset and its expected performance.
What is future premium?
In traditional markets, such as term contracts or stock options, a fixed risk rate is applied to both sides of the trade. This means that the buyer pays a bonus (or a risk -free profit) for the privilege of taking this risk, while the seller receives an equal return, regardless of the result.
In cryptocurrencies, however, things are not as simple. The price of cryptocurrencies is largely determined by market forces, and there is no fixed risk rate to apply. This has led to a situation where investors are looking for other ways to cover their bets against potential losses or gains in the cryptocurrency markets.
Prime term on the markets of cryptocurrencies
The term premium, also known as “propagation” or “volatility bonus”, refers to the additional return that investors seek to invest in cryptocurrencies beyond what is reflected in its current price. In other words, it is the additional profit that investors are ready to pay for the privilege of holding a cryptocurrency contract.
To illustrate this concept, consider the example of Bitcoin term contracts. These contracts allow traders to bet on the future price of bitcoin. The difference between the current price and the expected yield (or “volatility premium”) is generally between 0.5% and 2%, depending on market conditions.
For example, if Bitcoin prices are negotiated at $ 30,000, a trader could be willing to pay an additional $ 15 per unit (0.5%) for the privilege of holding a Bitcoin in the long term with an exercise price of $ 25,000 (expected return). This represents an additional benefit of 1.25% of the current price of the market.
Types of future premium
There are several types of premiums that investors can seek cryptocurrency markets:
* Volatility bonus : this is the most common type, where traders seek to cover themselves against losses or potential gains due to market volatility changes.
* Interest rate without risk : Some investors can seek a higher return on their investments, often called “risk-free interest rate”, by investing in cryptocurrencies that are not supported by any tangible assets.
* Time disintegration bonus
: this type of premium reflects the increased risk associated with the maintenance of a cryptocurrency for an extended period, because the price is more likely to decrease over time.
Impact on the prices of cryptocurrencies
The term premium has a significant impact on the prices of cryptocurrencies. By giving investors access to other ways to cover their bets against losses or potential gains, it can influence market dynamics in several ways:
* Reducing volatility : A decrease in premiums means that traders are more willing to take risks and invest in cryptocurrencies, which can lead to an increase in price movements.
* increasing participation : higher bonuses encourage investors to participate in the market, because they seek to take advantage of potential gains.
* Change of market behavior : The term premium can influence the negotiation volumes, liquidity and global feeling of the market, affecting the price of the price of cryptocurrencies.
Conclusion
Understanding the concept of a term premium is essential for investors who seek to sail in the complex world of cryptocurrencies.
