Cash-settled BTC derivatives may limit Bitcoin price gains

Macro economist Luke Gromen stated that the growth of cash-settled derivatives linked to Bitcoin could restrict BTC price increases. He highlighted a significant issue regarding the change in Bitcoin's long-term returns, pointing out that the annualized growth rate between market cycle peaks has sharply declined over the two cycles since cash-settled BTC derivatives were introduced. Gromen explained that derivatives allow investors to gain leveraged exposure to Bitcoin without purchasing spot BTC, and as the derivatives market expands, a larger portion of the trading that determines Bitcoin's price may occur outside the spot market where actual BTC transactions take place. With returns decreasing as cycles repeat, Gromen noted that it is challenging to anticipate a natural reversal of this trend if the cash-settled market continues to grow.

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