• SigOne Capital

Crypto Derivatives Landscape in 2019 & Looking Ahead to 2020

The global crypto derivatives market has taken great strides in 2019, with several major developments as the landscape continues to mature and evolve into 2020. Growth in demand for crypto derivatives has been undeniable, with volume records being set across some of the major derivative exchanges. Large players continue to enter the market introducting new institutional products, providing further incentive for major institutions around the globe to enter the digital asset space.

Major offerings in the cryptocurrency derivatives market include futures, options, and swaps, mostly offered against Bitcoin, with Bitcoin futures and options being the most popular. The Bitcoin futures market first began taking off in 2018, where volumes increased tenfold from 2017. According to data from Skew and Bitwise, Bitcoin derivatives are now trading at volumes 10x higher than the Bitcoin spot market.

For example, Skew Analytics reported $5.3 Billion USD of aggregate Bitcoin (BTC) Futures volume on May 14th, the first day they began tracking these figures. Aggregate Bitcoin (BTC) futures volume would reach a record high of over $30 Billion USD on October 25th. Despite some volatility, Bitcoin (BTC) futures volumes have clearly been on an upward trend, constantly peaking over $10 Billion USD in average daily volume. According to Cryptocompare’s November 2019 Exchange Review, monthly aggregate crypto derivative volumes crossed $325 Billion USD last month, with regulated Bitcoin derivative product volumes being dominated by CME. In fact, the CME recently announced that it had traded more than 2.4 million BTC futures contracts with a notional value of over $92 Billion USD since its initial launch.

As the crypto derivatives market has shown steady growth in 2019, new significant players and products have entered the space. This is highlighted by the launch of Bakkt’s physically settled Bitcoin futures, backed by Intercontinental Exchange (ICE), operators of the New York Stock Exchange. Bakkt was the first physically settled Bitcoin futures platform to be approved by the Commodity Futures Trading Commission (CFTC), and despite initial lower volumes, Bakkt’s trading volumes have gradually soared with record highs being established in both November 2019 and December 2019. In addition to its physically-settled products, Bakkt introduced Bitcoin options and cash-settled BTC futures as well earlier this month. As Bakkt expands its product offerings heading into 2020, the CME is following suit after announcing that it will be launching options on Bitcoin futures in early January 2020. Another leading crypto derivative exchange, OKEx, has recently also introduced Bitcoin options trading on its platform, which will be available publically in January 2020.

With a multitude of new entrants and institutional products launched in 2019, Jack Tao, CEO of Phemex, another new cryptocurrency derivatives exchange recently launched in Singapore, believes that this momentum will continue into 2020, stating “the derivatives market will grow significantly in 2020. Compared to traditional markets, the total volume of crypto is still relatively small and growth has been a consistent factor every year, regardless of bullish or bearish sentiments.”

Maturing and expanding crypto derivative markets should be a key catalyst for greater institutional adoption and capital flow moving forward. As derivative volumes grow, liquidity in the market will deepen, which should reduce volatility moving forward and encourage institutional capital to dive into the space. Deeper derivative markets will also lead to more transparent price discovery, as well as the ability to use leverage to execute large transactions, while also providing investors with a mechanism to hedge against price risk and speculate on volatility in the form of shorting.

The expansion of the crypto derivatives market in 2019 has been critical in encouraging mainstream adoption, and is a trend that we can expect to continue into 2020. Demand for crypto derivatives is on the upswing, while established incumbents in the traditional sphere such as Bakkt and CME are growing their presence in the crypto derivative space, providing institutions with trusted counterparties to transact with. Throughout the past year we have witnessed the infrastructure for mainstream institutional adoption continue to be set, and the growing derivatives market will make it difficult for institutions to turn their back on this asset class as we move into 2020.

For any questions please email the team: info@sigone.capital / info@dvchain.co


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