Retail Traders in U.S. Seize Opportunity for Crypto Derivatives Trading


America’s small-time bitcoin enthusiasts have a new and shiny derivatives platform that cryptocurrency analysts hope will breathe life back into a struggling market. On August 16th, Coinbase Global became the first crypto-focused company to be granted approval to provide U.S. retail customers with cryptocurrency futures.

The market is abuzz with the possibility that the first regulated and listed crypto firm to offer futures trading to U.S. retail investors will revive the cryptocurrency derivatives market, which is worth around $2 trillion. Lucas Kiely, Chief Investment Officer of digital investment platform Yield App, believes that “Coinbase’s approval to offer U.S. futures has the potential to rekindle hope and momentum in the market.”

Unfortunately, Hope and momentum have been in short supply due to a number of factors, such as global central banks being hawkish, issues with crypto exchanges like FTX and Binance, and economic uncertainty. Crypto markets are also struggling due to a drop in derivatives trading volumes, as investors are disinclined to make large bets because of low volatility.

At present, retail traders in the United States can trade bitcoin directly on licensed exchanges such as Bitstamp and Coinbase, trade options on the CME through a broker, or invest in bitcoin exchange-traded funds (ETFs) issued by fund managers such as ProShares and VanEck. This makes the Coinbase offering particularly exciting, as the influx of retail traders – known for their manic meme-stock trading on social media sites like Reddit – could make a real difference in the crypto world.

Todd Groth, Head of Index Research at CoinDesk Indices, says it is too early to tell what the impact of the launch will be. “It remains to be seen how Coinbase structures these products,” he said.

Derivatives such as options and futures have been a huge part of cryptocurrency trading since they appeared around 2014, as people quickly saw the benefit of making bets on bitcoin’s price movements with minimal investment. Institutional investors also like derivatives, and the number of Large Open Interest Holders – those holding more than 25 contracts – in CME bitcoin futures is up 5% since the second quarter, according to the exchange’s data.

However, derivatives trading volumes have declined significantly, with July seeing a 13% drop to $1.85 trillion, the lowest monthly volume since December 2022 and the second lowest derivatives trading volumes since 2021, according to research firm CCData. Derivatives make up 78.2% of the total cryptocurrency trading volume on centralized exchanges in July, CCData also reported.

Kaiko Research analyst Dessislava Aubert believes that “for now, the derivative market is dominated by offshore exchanges, mainly Binance.” However, she also pointed out that the market dominance of Binance has been declining this year, suggesting there is potential for growth in derivatives trading. Aubert believes Coinbase could benefit from its strong reputation and attract institutional clients.

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