Why Might an Institutional Trader Prefer a Physically Settled Crypto Derivative? ⎊ Path

Why Might an Institutional Trader Prefer a Physically Settled Crypto Derivative?

Physical settlement allows the trader to acquire or dispose of the actual underlying asset, such as Bitcoin, without having to execute a separate spot trade. This is useful for funds with a specific mandate to hold the physical asset, or for arbitrage strategies that rely on having the underlying asset for immediate use.

It avoids basis risk between the derivative and the spot market.

Are There Any Physically Settled Crypto Futures?

In What Scenario Would a Hedger Prefer Physical Settlement over Cash Settlement?

How Does a “Cash-Settled” Crypto Derivative Differ from a “Physically-Settled” One?

Explain the Difference between Physically-Settled and Cash-Settled Futures Contracts

What Is the Primary Difference between Cash-Settled and Physically-Settled Crypto Futures?

Does the Settlement Process for Cash-Settled Options Differ from Physically-Settled Options at Expiration?

Why Might Institutional Traders Avoid Exchanges with Low Liquidity?

What Is the Difference between Cash-Settled and Physically-Settled Futures?

Glossar

Physically Settled Crypto

Settlement ⎊ Physically settled crypto derivatives represent a class of contracts where the obligation at expiry is fulfilled through the direct delivery of the underlying cryptocurrency asset, rather than a cash settlement.

Arbitrage Strategies

Concept ⎊ Arbitrage Strategies involve the simultaneous purchase and sale of an asset across different markets to profit from a temporary price disparity, a practice highly relevant in the crypto derivatives space where asset pricing can exhibit transient inefficiencies between centralized exchanges and decentralized finance protocols.