At 4:00 p.m. on June 22, 2018, inverse Litecoin futures will begin trading on Crypto Facilities, a digital asset trading platform based in the United Kingdom. Denominated in US dollars, this financial product will allow traders to select long or short positions in the cryptocurrency.
At the time of writing, Litecoin is the sixth-largest cryptocurrency by market capitalization ($5.5 billion), according to CoinMarketCap. There are approximately 57 million coins in the cryptocurrency's circulating supply and there's ostensibly a 24-hour global trading volume worth a little more than $257 million. Compared to its bitcoin cousin, which has a hard cap of approximately 21 million units, there's a significantly greater maximum supply of LTC (84 million units).
Glancing at the Litecoin markets, the LTC/BTC trading pair is the most popular, but the Tether trading pair follows closely behind. OKEx (a Hong Kong exchange) dominates the charts, with its LTC/BTC and LTC/USDT trading pairs accounting for 27.49 percent of the total Litecoin trading volume. In fact, GDAX is the only well-known, US-based exchange among the top 10 on the Litecoin charts.
The reference rate for inverse LTC futures is not immediately apparent, but according to the Crypto Facilities website, there will be three maturities available for trading: weekly, monthly, and quarterly. Unless there is a holiday, contracts will expire on Fridays (or for the longer contracts, the last Friday of the relevant month).
Incredibly, the exchange offers a maximum leverage of 50x on any of its cryptocurrency futures (gulp). It looks like the European Securities and Markets Authority's leverage limits applied only to contracts for differences and binary options, not cryptocurrency futures. Beware, leveraged trading is not for the faint of heart – or really, for most people. Leveraged cryptocurrency futures are, well, otherworldly (to the moon, anybody?).
It'll be fascinating to see if the Litecoin spot markets react to LTC futures, especially since the coin's trading volume is closely tied to bitcoin itself. While bitcoin futures were blamed for a downturn in the bitcoin price, it's not obvious whether something similar would happen for Litecoin.
Note: To be fair, it looks like the cryptocurrency-based futures products currently on offer by Crypto Facilities don't have massive volumes (only in the range of a few million dollars), so maybe the impact won't be all that dramatic after all.
Rather than attempt to explain inverse cryptocurrency futures, I direct interested readers to this 2016 research paper by Aleksey Bragin, a Ph.D. candidate who was then an assistant professor in the computer science department at the Moscow State Technical University in Russia. Suffice to say, it's a little complicated.