Crypto Trading Platforms Lean on Derivatives to Boost Market Appeal

Crypto trading platforms are reportedly increasingly turning to derivatives to attract a broader investor base amidst rising regulatory scrutiny and the allure of high leverage. Currently, derivatives within the crypto market, including futures and options, make up 71% of trading volumes. Open interest in these derivatives has hit record highs, exceeding $40b this year.

The Financial Times reported Monday that several emerging crypto trading platforms are poised to enter the market. These include D2X, One Trading and GFO-X. They are set to compete with major players like CME Group, Binance, and Bybit and Kraken.

These new platforms are prioritizing regulatory compliance. Their goal is to reassure investors who worry about potential SEC legal actions. These actions often concern unregistered securities.

For example, One Trading, which holds an EU regulatory license, is gearing up for a significant marketing effort across Europe in the upcoming year, the FT said. It intends to promote the platform’s capability to serve both retail and institutional investors with perpetual futures contracts.

Earlier this year, the London Stock Exchange Group’s Parisian clearinghouse affiliate received approval to provide clearing services for Bitcoin derivatives.

Crypto Traders Turn to Leverage Amidst Waning Lending Options

Derivatives offer traders significant leverage, allowing investment with only a fraction of the full asset cost. Platforms like Bybit and Kraken enable leverage up to 125 times and 50 times respectively, which is particularly appealing in a post-crash environment where traditional crypto lending has dwindled.

This leverage compensates for the loss of unsecured borrowing options following the collapse of major crypto lenders like Genesis and BlockFi.

Bitcoin’s Rise, New ETFs Ignite Investor Interest in Derivatives

Bitcoin’s price surge and the introduction of spot bitcoin and ether ETFs have drawn new investors, prompting exchanges to ramp up their derivatives offerings.

CME Group, the market leader, has seen record trading volumes and continues to innovate with new contract types to attract more business. The appeal of derivatives also lies in their efficiency for capital usage, especially for regulated investors who might shy away from direct token trading due to regulatory fears.