Mom and pop bitcoin enthusiasts in America now have access to a brand-new derivatives playground that cryptocurrency specialists think may revitalize a dormant sector.
Coinbase Global (COIN.O), a cryptocurrency exchange, is their new platform, and on August 16 it became the first company with a concentration on cryptocurrencies to receive approval to provide cryptocurrency futures to American retail consumers.
It’s still early. However, the first regulated and listed cryptocurrency company to provide futures trading to American public investors has the potential to resurrect the $2 trillion crypto derivatives market, which is now on the decline.
According to Lucas Kiely, chief investment officer of digital investment platform Yield App, Coinbase’s approval to trade U.S. futures might revive optimism and market momentum.
In a market where bitcoin has been stagnating for months due to unfavorable central bank policies around the world and issues with cryptocurrency exchanges like FTX and Binance, momentum and hope are in short supply.
Coinbase’s announcement also comes at a time when trading volumes in derivatives have dramatically decreased as a result of persistent regulatory barriers, low volatility, and economic insecurity that has discouraged investors from placing large wagers.
On authorised exchanges like Bitstamp and Coinbase, retail traders in the US can directly trade bitcoin. On the CME, they can trade options, but only through a broker. Alternately, they could invest in exchange-traded funds (ETFs) for bitcoin offered by fund managers like ProShares and VanEck.
That is why there is excitement around Coinbase’s new product. A surge of retail traders, known for their hysterical meme-stock trading sparked on social media platforms like Reddit, might alter the cryptocurrency landscape.
According to report, it is still too early to determine the launch’s impact. He added that it is yet unclear how Coinbase will arrange these goods.
DROP IN DERIVATIVES
Since these products debuted in 2014, derivatives like options and futures have dominated the trading of cryptocurrencies as investors seized the chance to make wagers on bitcoin’s price movements with small initial investments.
The number of large open interest holders (those owning more than 25 contracts) in CME bitcoin futures has increased by 5% since the second quarter, according to the exchange’s data, indicating that institutional investors have a strong preference for them.
The predominance of options trading is sometimes mentioned as the cause of cryptocurrencies’ infamous volatility since it encourages investors to make highly leveraged bets that can profit from both gains and losses.
Yet, according to research, trading volumes in derivatives fell by about 13% in July to $1.85 trillion, the lowest monthly volume since December 2022 and the second-lowest volumes since 2021.
In cryptocurrency markets, derivatives are a huge industry. Derivatives accounted for 78.2% of the entire cryptocurrency trading volume on centralized exchanges in July.
Despite a decline in overall volumes in the second quarter of 2023, derivatives volume was six times more than spot volume. Spot cryptocurrency trading volumes decreased 10.5% to $515 billion during the same time frame.
According to Dessislava Aubert, an analyst at Kaiko, offshore exchanges, particularly Binance, currently control the majority of the derivative market.
However, this year they have noticed a reduction in its power. Essentially, this suggests that the trading of derivatives has room to grow. In particular, Coinbase might use its excellent reputation to draw in institutional clients.
