Binance Considers Venturing into the Red Hot Cryptocurrency Derivatives Market in Next Chess Move
Although much of the cryptocurrency market is still suffering from the bearish run its been having, there is one section of the market that has been seeing some attention – derivatives. The derivatives market is broad, offering products like options, futures, swaps, contracts for differences, etc.
However, the difference between derivatives and the actual crypto market is that there is technically no direct use of cryptocurrency.
With this disconnect, institutional investors become more comfortable with the trading, and multiple platforms are paying attention, according to The Block. Thomas Chippas, the CEO of ErisX, recently spoke with The Block, saying,
“As an ecosystem matures, and as the crypto ecosystem matures, people look for new ways to express a view of the market.”
This is one of the many firms that have already launched a derivatives exchange, along with Bakkt (from ICE) and SeedCX. They are presently working to offer physically delivered futures for multiple assets to be used in trading, since they believe that a tangible product will be more appealing to firms that want to hedge their positions.
Chippas continued, saying, “Miners, consumer platforms and token projects are all looking for different ways to manage risk.” This is the same purpose of futures in the traditional financial market. Providing an example, Chippas said,
“Take gold, for instance, everyone down the chain of that product is going to want to take risk off that product.”
LedgerX is presently focusing on launching new derivatives as their main goal for this year. The new contract that they are implementing makes it possible for betting on the posting of bitcoin block rewards.
When The Block spoke with CEO Paul Chou, he told the news media website that they have other products planned for the year as well, proving that there are more and more companies looking to launch derivatives products while they are still hot.
During his interview, Chou said,
“One of the interesting aspects of derivatives is often their notional value can outpace spot.” He added, “The proliferation is going to continue. Here in the U.S., you have to go through a lengthy review process for every new product, but there is an opportunity to get new revenue lines and every new derivative contract is a new revenue line. It makes sense that we would see that development in the ecosystem.”
Kraken is yet another example of an exchange that has already tied in futures and perpetual swaps trading, which they have connected to multiple crypto assets. Last year, Kraken ended up purchasing the Crypto Facilities futures exchange for over $100 million.
Considering the success of Kraken’s and other platforms’ work so far, Binance has expressed interest in breaking into the futures trading market as well.
Binance is the biggest cryptocurrency exchange in the world by volume, and the addition of futures and other derivatives may be a way to keep themselves at the top. Trading volumes have dwindled with both Binance and Kraken through this bear market, which makes the profitable aspect of derivatives trading more enticing.
Compared to the core cryptocurrency market, two platforms that support futures trading, BitMEX and BitFlyer, saw 17% increases in their volume as the rest of the market saw up to 80% losses in volume from October to December.
CEO of CoinFLEX, Mark Lamb, is familiar with this market, even though their crypto derivatives exchange only launched this year. The platform allows for perpetual swaps, along with physical derivatives for crypto in trading. Lamb commented,
“The space has been moving into this direction for a long time.” He added, “Traders are all about the efficiency of their capital and maximizing the return on equity. Futures just make much higher returns more possible as they are really great for arbitrage and other complex strategies.”