alt Hacker NewsWhy would you expect the scale of the derivatives to be related to the scale of the spot market, especially if the derivatives are cash-settled futures? One is basically gambling on the price of BTC going up or down, and the other is trading the actual BTC, right?
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I dunno, ask India and Jane Street. That's the same basic situation: when the derivative market betting on the price going up or down is much larger than the market that actually sets that price, it's ripe for arbitrage/market manipulation by a player big enough to move the market (which one you think it is depends on whether you're one of the gamblers getting fleeced or the one taking their money).
Because at that scale, the tail is wagging the dog and it is not even close.
How is trading the actual BTC not also gambling on the price of BTC going up or down?
Well for one with a gigantic derivatives market compared to the underlying one it becomes relatively cheap to manipulate the underlying market.
If you can make a gigantic bet on the price going up and then buy a large amount of Bitcoin that moves the price up you can win from that. See the Jane street India derivatives market issue.