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The Rising Tide of Crypto Derivatives: Genesis Trading Foresees an Evolution

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The second quarter of 2023 has been quite a remarkable period for crypto derivatives, and Genesis Trading, a subsidiary of Digital Currency Group, expects this trend to drive the next wave of growth in the industry. Specializing in over-the-counter (OTC) trading services for institutional investors and wealthy individuals, Genesis Trading laid out their insights in a recent Q2 2023 report.

Genesis shed light on some exciting developments within the crypto derivatives space during Q2 2023. A notable instance includes options exchange Deribit’s new year-to-date high in the number of option contracts traded in just 24 hours. This event went hand-in-hand with Bitcoin’s resurgence above the $30,000 threshold, thus displaying the symbiotic relationship between price shifts and derivatives activity.

In June, Coinbase rolled out its institutional-level fixed-date and perpetual futures, a move acknowledged by Genesis. Additionally, the Chicago Mercantile Exchange (CME) saw a nearly 25% hike in options volumes, reaching about $1 billion in July. Concurrently, futures trading volumes faced a drop, a scenario that Genesis interpreted as a positive sign for the rising trend of institutions favoring options.

Genesis went on to underscore the future potential of a well-fortified crypto derivatives market and its transformative influence on global institutional acceptance. While options trading has been flourishing, it only represented about 10% of the spot volume in the first half of 2023.

The company also emphasized a comparison between traditional finance and the crypto world. In 2021, equity options in the U.S. overtook the notional traded value of underlying equities for the first time. Genesis foresees a similar trajectory for the crypto options market, believing it might grow tenfold from where it currently stands. “If following this TradFi trend, the crypto options market has room to grow 10-fold from current levels,” stated the report.

The Q2 2023 period also marked the entrance of established financial entities into the cryptocurrency sector, signaling a more widespread trend of acceptance and legitimacy. Genesis Trading painted a promising picture of potential institutional involvement, given the roughly $50 trillion in capital within U.S. pension funds, 401(k) plans, and hedge funds.

It has become increasingly apparent that a significant portion of the future growth of crypto volumes will be in derivatives.

Genesis also provided a noteworthy insight into the likelihood of these funds acquiring exposure to Bitcoin through spot-based ETFs. According to their perspective, this possibility could profoundly benefit the growth and maturation of the crypto market. Historically, the inception of ETFs has acted as a propellant for price growth in the underlying asset.

With challenges in spot market liquidity and a tilt towards derivative instruments, the crypto’s derivatives market is setting the stage for massive expansion. “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,” concluded Genesis.

This report, filled with analysis and future projections, has solidified the belief that crypto derivatives are not just an emergent trend, but a critical engine for the next phase of industry growth. Whether these predictions will materialize remains to be seen, but the signs are pointing towards an exciting future.

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