FT: Cryptocurrency exchanges expand into derivatives to attract cautious investors

Cryptocurrency trading venues are rapidly expanding into derivatives, hoping that tighter regulation and the promise of high-leveraged returns will lure wary investors into the market. Next month, Dutch cryptocurrency futures and options venue D2X will launch, while London-based One Trading and GFO-X are both planning to launch early next year. They will join other new derivatives players such as Kraken, which launched a trading platform in Bermuda this month, in an attempt to compete with CME Group, Binance and Bybit for market share. Futures and options trading account for 71% of all digital asset trading volume, according to CCData. Open interest in crypto derivatives, a measure of market depth, topped $40 billion for the first time this year. “Derivatives give you leverage,” said Jason Urban, global head of trading at Galaxy Digital. He said that since many crypto lenders collapsed, “unsecured lending has disappeared in the ecosystem, so people naturally want to find ways to get that leverage.” In addition, Nico Cordeiro, chief investment officer of U.S. crypto hedge fund Strix Leviathan, said that large U.S. exchanges are “aggressively” trying to increase their trading volume, asking to answer calls and show traders new products and features. “Being a regulated exchange is a big deal.” Market leader CME Group has seen record trading volumes and open interest this year, and the exchange has taken advantage of the launch of new derivatives contracts, including Bitcoin Friday futures, a weekly contract that matches the New York trading week. Cordeiro said CME’s trading volume has surged because “it’s the place where all these highly regulated investment managers can get exposure to investments,” adding that “it’s really the only platform in the U.S. where you can get strong capital efficiency.” (FT)