The crypto industry has grown at an unprecedented rate over the past two years. In doing so, it has built up great power and influence. More people are now trading cryptocurrency than ever before, and the demand for these assets has steadily increased.
This is causing crypto firms to enter the highly regulated derivatives market in the US.
According to CryptoCompare, crypto derivatives volumes registered nearly $3 trillion in January, accounting for more than 60 percent of cryptocurrencies trading.
Most crypto companies are entering the derivatives market to expand their user base. They also look at challenging the existing financial companies. For example, Coinbase, one of the largest crypto trading platforms, agreed to buy FairX, a Chicago futures exchange, for the purpose of allowing users to access the exchange through the app. Similarly, Crypto.com signed a $216 million deal for two retail companies of the UK’s IG Index late last year. Others, such as CBOE, bought ErisX, a digital asset trading company, and FTX US bought the derivatives platform LedgerX.
A major factor behind this increasing interest of crypto trading platforms in the derivatives markets is that derivatives are often used to increase bets on financial assets. Futures and options allow traders to invest only a fraction of the value of a deal at the time of investment.
Traders bet that prices would rise or fall to some degree during the predetermined time frame. This bet can significantly increase traders’ profits or lead to high losses. Traders tend to take the risk more often.
Another contributing factor to this shift: a vast majority of derivatives trades are made on offshore platforms such as Binance, FTX and OKEx, which are subject to little or no regulatory oversight.
Crypto firms are also building a base in the US by buying up smaller companies that have licenses to operate in the country.