Crypto Industry Is Eyeing US Derivatives Market
The crypto industry has risen at an unprecedented pace over the last two years. With that, it has accumulated great power and influence. More people are now trading in cryptocurrency than ever before, and the demand for these assets has been seeing a steady rise.
This is making crypto companies push into the highly regulated derivatives market in the US.
According to CryptoCompare, volumes in crypto derivatives registered almost $3 trillion in January, which accounted for more than 60 per cent of trading in cryptocurrencies.
Most crypto companies are entering the derivatives market to expand their user base. They are also looking at challenging the existing financial companies. For instance, Coinbase, one of the biggest crypto trading platforms, agreed to buy FairX, a Chicago futures exchange, with an eye to allow its users to access the exchange through its app. Similarly, Crypto.com signed a $216mn deal for two retail businesses from the UK’s IG Index late last year. Others like CBOE bought ErisX, a digital assets trading business, and FTX US bought derivatives platform LedgerX.
A significant factor behind this rising interest by crypto trading platforms in the derivatives markets is that derivatives are often used to magnify bets on financial assets. Futures and options allow traders to invest only a fraction of the value of a deal at the investment time.
Traders bet that the prices would rise or fall to a certain extent during the pre-determined time frame. This betting can significantly increase traders’ profits or lead to high losses. Traders tend to take the risk more often.
Another factor contributing to this shift: A vast majority of derivatives deals are done on offshore platforms like Binance, FTX and OKEx, which are subject to little or no regulatory oversight.
Crypto companies are also building a base inside the US by buying up smaller companies that hold licences to operate in the country.