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Crypto Derivatives Market Might be ‘Double the Size’ of Spot Market in 2020

Sead Fadilpašić
Last updated: | 2 min read

Should interest in spot trading wanes, this year will see crypto derivatives rising, with futures and options contracts taking a larger market share, estimates TokenInsight, a token data and rating agency. Also, competition for institutional clients might force exchanges to lower fees, they added.

Source: iStock/MaFelipe

In 2019, the volume of OKEx futures was 2.24 times the volume of spot trading; there were 238 days of BitMEX trading volume reaching more than twice that of Binance, and only 8 days of Binance spot trading volume exceeded BitMEX, the agency said in its 2019 Cryptocurrency Derivatives Exchange Industry Annual Report.

Source: TokenInsight

“If the spot market continues to be sluggish, it can be predicted that the total derivatives market trading volume in 2020 will grow to more than twice the spot trading volume,” they said, predicting that the competition in the derivatives products will be more intense, giving each exchange the opportunity to get more investors. However, the first to reduce fees or launch a fixed rate exchange “will be favored by the [institutional investors]” as now it’s still too expensive for them.

Among the 12 derivatives exchanges studied by TokenInsight, 27 types of cryptocurrency futures contracts were listed. But the structure of the trading fees on cryptocurrency futures contracts “is obviously designed for retail investors,” says the report, providing a comparison.

According to Amber Song, an analyst at TokenInsight, exchanges might offer a special fee for institutions, while a tiered fee structure would remain.

For example, in October cryptocurrency exchange Coinbase Pro, operated by major U.S.-based crypto company Coinbase, increased fees for lower-volume customers and reduced fees for high-volume customers.

Consolidation and new products

“I think that there is going to be significant consolidation of crypto derivatives in 2020. I also think that there will be increased usage of new types of derivatives–starting with options but quickly including tokenized trades,” Sam Bankman-Fried, CEO of cryptocurrency derivatives exchange FTX, co-owned by Binance, was quoted as saying in the report.

He also predicts that this year, we’ll see a “small increase in derivatives markets–maybe reaching 15-20b/day of volume.”

“I’d guess that the number of traders will increase but only slightly as well and that the number of significant venues will probably decrease as the industry consolidates,” the CEO added.

Meanwhile, Hopex Derivatives Exchange CMO, Jenny Zhang, said that “In 2020, options trading will still be in its infancy” due to technical barriers and operating costs among other reasons.

“The exchanges that complete the layout of futures trading in 2019 may begin to deploy options trading in 2020, occupying this undeveloped fertile land earlier, but this is just the beginning,” she was quoted as saying in the report.
Learn more: CME Doubles Bitcoin Options Volume, Leaving Bakkt in the Dust