The crypto industry pushes into regulated derivative markets

cryptocurrency companies push into the heavily regulated US derivative market because they try to satisfy the demand from retailers for excessive bets on digital assets.

According to the data provider Cryptocompare, the volumes in crypto derivatives were almost $ 3 trillion in crypto derivatives last month, which makes up more than 60 percent of the trade in cryptocurrencies. Most activities take place at offshore event locations, as are supervised by the stock Exchange giant binance that are hardly subject to any official supervision.

crypto groups are now trying to build bridgeheads on the strictly monitored US market by buying smaller companies that already have licenses in America.

The crypto industry is moved deeper into regulated markets because it tries to build up a larger user base and to challenge existing financial companies such as brokers that already offer trading with stocks and other financial systems.

Coinbase, one of the largest platforms, agreed in January, Fairx, a small appointment exchange in Chicago, to buy the derivative market with its "user -friendly" app "more accessible".

The step takes place after Crypto.com has completed a $ 216 million deal for two retail companies from the British IG index; CBOE bought Erisx, a trading company for digital assets; and ftx US bought the derivative platform LedGerx.

derivatives are often used together with loans to strengthen bets on financial assets. Although they are available for a wide range of products such as stocks, currencies and raw materials, they are most often used by professional investors.

Rosario Ingarrgiola, founder and managing director of Bosonic, a crypto handling service for institutional investors, pointed out that retail cryptic exchanges play a role, which is more similar to that of retail makers on the foreign exchange markets than traditional stock exchanges.

"In the USA, the crypto exchanges cannot offer a leverage on spot crypto without being a regulated dealer for scheduling shops," said Ingarrgiola.

"This is a large part of the reasons why larger crypto exchanges buy [Commodity Futures Trading Commission] regulated platforms that enable the supply of derivatives such as options and futures to private customers, since there is enormous demand for lever products in private customer segment."

futures and options enable dealers to set only a fraction of the value of a business by effectively bets that prices will increase or fall over a specified period. It can increase the amount of profits for traders that can spice up positions with borrowed money, but unfavorable market movements can also increase the size of the losses enormously.

The past year marked a breakthrough for crypto derivatives. For the first time, the volumes overtook the Kassa or Kassamarkt in the appointment market. In January, according to CryptoCommare, trading with derivatives made up about three fifths of the overall market, the highest proportion since the start of the records.

The vast majority of derivative transactions are made on the non-regulated offshore platforms Binance, FTX and OKEX. The only regulated US marketplace that gained a foot is the CME Group, which, according to Cryptocome data, was about 4 percent of global trade in crypto derivatives last month. Last year, the CME "Mikro" versions of its Bitcoin and Ether Futures Contracts launched the market to address smaller investors.

"The retail trend is real. We have placed our bets that it is not a fad," said Martin Franchi, managing director of Ninjatatrader, a retail futures broker who has agreed to buy his rival Tradovate Holdings from Chicago for $ 115 million.

"The addressable market has changed millions of times. We see a spillover effect. From commission-free trade, they switch to options and then to futures," he said. "Crypto futures are the intersection of the two worlds. The focus on futures is getting stronger."

The boundaries between retail and institutional markets are already blurring. Some of the largest and most experienced names of Wall Street are behind the companies geared towards retail, which were bought up by crypto exchanges. Small Exchange, for example, was supported by Citadel Securities, Jump, Interactive Brokers and Peak6, a private equity vehicle that is operated by the former Chicago option dealer Matt Hulsizer.

Some predict that the cryptom market will go the same way as the foreign exchange market, which offers private investors and institutional investors.

B2C2, a crypto trade company, has predicted that crypto exchanges will lose to ground compared to brokers, the apps of which also offer the same user-friendly user experience as CoinBase. These consumer transactions are usually carried out on out -of -the -counter markets and secured with futures. And in contrast to the foreign exchange market, private investors can still trade directly on an exchange, emphasized Chris Dick, senior trader of the group.

But success can be in the types of competing futures that are probably offered.

On crypto futures exchanges, the positions of dealers who have enlarged their missions by borrowing will automatically reduce when the price of a digital token reaches a certain threshold, which is known as a liquidation price. This has led to allegations that it tightens market volatility rather than dampens.

The process also contradicts the traditional futures market, where investors' positions remain open if they can deliver more collateral overnight. If not, they can be auctioned and passed on to another market participant.

The CFTC encourages all stock exchanges that list futures beyond pure cryptocurrency products, emphatically to discuss their plans in advance. But a CFTC regulated stock exchange, including those belonging to a crypto company, can certify their own cryptocurrency products.

"This will be an interesting dynamic," said Chris Zuehlke, partner at DRW, a trading company from Chicago, and global head of the company's cryptocurrency branch, Cumberland. "Is [Auto Liquidations] the right model? We have to discuss what the best practice is."