What lies ahead for the future of the cryptocurrency market? As the spot market shows signs of drying up, all eyes are reportedly turning towards the derivatives sector. Genesis Trading, in its Q2 2023 report, has pointed to rising derivatives volumes as the industry’s next growth engine. But what has led to this shift? Is it the challenges in spot market liquidity, or is there a broader trend at play? The report highlights key developments in the crypto derivatives space, including a new year-to-date high for option contracts traded and the rollout of institutional-sized futures by Coinbase. But what does this mean for the average investor?
Crypto Options Market Evolution
The crypto derivatives market is not just a fleeting trend; it’s poised for significant growth. With traditional finance as a precedent, where the notional volume of equity options surpassed underlying equities, the crypto options market could potentially expand tenfold from its current levels. But what will drive this growth? Is it the entry of established financial entities into the cryptocurrency space, or the vast potential for increased institutional participation? With around $50 trillion in capital sitting among U.S. pension funds, 401k plans, and hedge funds, the implications for the crypto market’s growth and maturation are profound. Could this be the catalyst that takes the crypto industry to new heights?
“With spot market liquidity suffering and spot order book depth chronically flagging, it has become increasingly apparent that a significant portion of the future growth of crypto volumes will be in derivatives,” Genesis said.
Genesis Trading, a subsidiary of Digital Currency Group, primarily focuses on over-the-counter (OTC) trading services for institutional investors and high-net-worth individuals.
Deribit Options Exchange Boom Shows Growth Trading Signals
In its latest report, the firm highlighted key developments in the crypto derivatives space during Q2 2023, including options exchange Deribit hitting a new year-to-date high for the number of option contracts traded within a 24-hour period.
This achievement coincided with Bitcoin’s resurgence past the $30,000 mark, reflecting the close interplay between price movements and derivatives activity.
Genesis also highlighted Coinbase rolling out its institutional-sized fixed-date and perpetual futures in June, as well as pointing to options volumes at the Chicago Mercantile Exchange (CME) experiencing a significant increase of nearly 25% in July, reaching approximately $1 billion.
This surge in options volumes occurred alongside a decline in futures trading volumes, “boding well for a continuation of the trend that options are increasingly seen as the go-to instrument for institutional players,” according to Genesis.
Options Market Could See 10x Growth: Genesis
The report further emphasized the potential transformative impact of a robust crypto derivatives market on global institutional adoption.
Despite the rapid growth of the options market, its volume for the first half of 2023 accounted for only about 10% of the underlying spot volume.
Drawing parallels with traditional finance, where the notional volume of equity options surpassed the notional traded value of underlying equities, Genesis believes the crypto options market could potentially expand tenfold from its current levels.
“As a corollary, the notional volume of equity options in the US exceeded the notional traded value of the underlying equities in 2021 for the first time,” the report read. “If following this TradFi trend, the crypto options market has room to grow 10-fold from current levels.”
The second quarter of the year also witnessed the entry of established financial entities into the cryptocurrency space, indicating a broader trend toward adoption and legitimacy.
The firm further highlighted the vast potential for increased institutional participation in the crypto space, with around $50 trillion in capital sitting among U.S. pension funds, 401(k) plans, and hedge funds.
According to Genesis, the possibility of these funds gaining exposure to Bitcoin through spot-based ETFs could have positive implications for the crypto market’s growth and maturation, as the launch of ETFs has historically acted as a catalyst for price appreciation in the underlying asset.
Is the crypto options market poised to follow traditional finance trends? Conclusion:
As the crypto derivatives market stands on the brink of exponential growth, questions abound. Will the tenfold expansion predicted by Genesis Trading materialize? How will the entry of established financial entities and the potential participation of institutional funds shape the future landscape? With the crypto options market poised to follow trends seen in traditional finance, the implications are vast and far-reaching. But what does this mean for individual investors, and how will it impact the broader crypto ecosystem? Only time will unravel the answers, as we watch this intriguing chapter of financial innovation unfold.
Disclaimer
The information provided on this page does not constitute investment advice, financial advice, trading advice, or any other sort of advice and it should not be treated as such.
This content is the opinion of a third party and this site does not recommend that any specific cryptocurrency should be bought, sold, or held, or that any crypto investment should be made.
The Crypto market is high-risk, with high-risk and unproven projects. Readers should do their own research and consult a professional financial advisor before making any investment decisions.
