TL;DR
- Cryptocurrency platforms are betting on derivatives to attract cautious investors.
- Derivatives allow trading with high leverage, which is attractive in a market with less access to credit.
- Major players such as CME Group and Kraken are competing with new entrants such as D2X and One Trading in this growing market.
Crypto platforms are turning their attention to financial derivatives as a way to attract investors who have so far been more cautious about the digital asset market.
With an increasingly strict regulatory framework, these platforms seek to offer high leverage opportunities through futures and options on cryptocurrencies such as Bitcoin and Ether.
These types of products have attracted a lot of interest because they allow investors to trade at a fraction of the total cost of the asset, thereby amplifying potential profits.
New platforms are emerging in this space, such as Dutch-based D2X, which will launch its cryptocurrency futures next month, and London-based One Trading and GFO-X, which plan to introduce their services early next year.
These newer players are competing with established leaders such as CME Group, Kraken and Binance, who have been major players in this sector.
According to the Financial Times, Kraken has recently launched a Bermuda-based derivatives platform to further expand its offering.
The price of Bitcoin has risen more than 50% this year, surpassing $67,000, and derivatives now account for 71% of total trading volume in digital assets, according to data from CCData.
This reflects how investors have changed their approach to these products, partly because leverage allows for increased bets without the need to have large amounts of capital up front.
Platforms like Bybit allow leverages of up to 125x, while Kraken offers up to 50x, which is very attractive in a market where lending has declined since the fall of large lenders like Genesis and BlockFi.
Expansion of the cryptocurrency derivatives market
The crypto derivatives market is growing rapidly due to the advantages it offers, such as capital efficiency and reduced risks associated with the direct purchase of tokens.
This makes it especially attractive for investment managers looking for exposure to cryptocurrencies on regulated platforms like CME Group.
The latter has seen a boom in trading volume and open interest in its contracts, partly driven by the introduction of weekly futures, such as the “Bitcoin Friday futures”, which are aligned with the New York trading week schedule.
On the other hand, new platforms seeking to attract institutional investors are placing a strong emphasis on regulatory compliance.
One Trading, for example, stands out for being the only one in Europe that offers perpetual futures to both retail and institutional clients on the same platform.
Additionally, Nasdaq-listed Coinbase is finalizing the purchase of a regulated entity in Cyprus that will allow it to expand into the European Union with regulated derivatives.
Competition in this market is intensifying as more exchanges look to innovate and attract investors through new, efficient products and regulatory compliance that offers security in an increasingly regulated environment.