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The volume of crypto derivatives triples the volume of spot trading

November 3, 2020

The entire digital assets industry looks a lot different than it did three years ago. In a true Wild West year 2017, there was a spike in the price of astronomical assets and a fundraising boom amid underdeveloped regulations. Some elements of 2017, like the first coin offerings, have largely disappeared. Other niches like Derivatives trading has seen very significant growth since then, As revealed in the latest report from the US-based cryptocurrency exchange Kraken.

“Starting with pioneers like Crypto Facilities, BitMEX, Deribit, BitVC (now HuobiDM) and OKCoin (now OKEx), the derivatives that were trading in the cryptocurrency markets really consolidated in 2017 and fell with the entry of established companies like CME and CBOE” , says Krakens November report with the title “The Tail Wags the Dog: A Evolution in Bitcoin Futures”.

The report found that “Derivatives are now at least 4.6 times the spot volume and we expect the trend is likely to continue.” Spot trading with Bitcoin (BTC) is done with real BTC. bought and sold at the market price and it is possible to withdraw it from the exchanges. Derivatives are products that are traded on exchanges. They’re basically like betting on the future price of Bitcoin.

The volume of crypto derivatives triples the volume of spot trading
The volume of crypto derivatives triples the volume of spot trading

The demand for crypto derivatives has increased significantly in recent years. Based on this trend, platforms like BitMEX have grown, new players like Bybit and existing exchanges like Binance added its own derivatives.

The Chicago Mercantile Exchange, or CME for its acronym in English, added bitcoin futures in 2017 and later included trading bitcoin options in 2020. Also the Chicago Board Options Exchange (CBOE) opened trading in BTC futures in 2017, although the company closed trading in that product in 2019.

“The growth in the volume of derivatives is in stark contrast to the volume of cash,” details the Kraken report. Spot trading in cryptocurrencies has slowed since the turmoil in the last industry market, while trading in derivatives is now the focus of attention:

“From the second quarter of 2017 to the first quarter of 2018, spot volume soared from a low of about $ 58 billion to a high of $ 570 billion before falling significantly to a low of $ 104 billion for nearly two years Since then, derivatives have completely overtaken the spot market as the dominant market, while spot volumes have not fully recovered, with the notional volume of derivatives exploding from less than $ 6 billion in Q2 2017 to more than $ 1.7 million in Q3 2020 . “

As for the logic of growth, Kraken believes leverage plays a role in this. Derivatives traders can essentially borrow large amounts of capital to trade depending on how much they have in their accounts.

Although trading in derivatives has been booming since 2017, regulation is catching up; Most crypto derivatives trading platforms have had limited access to US traders in recent years. Recently, US authorities have also prosecuted BitMEX for alleged violations of the regulations.