Crypto Derivatives: A Corner of the Market or the Market Itself?

Emmanuel Goh is co-founder & CEO of skew. – a financial technology startup headquartered in London since 2018. These opinions are his and do not necessarily reflect the view of CoinDesk.

The following article originally appeared in Institutional Crypto by CoinDesk, a weekly newsletter focused on institutional investment in crypto assets. Sign up for free here.


The race is on.

One business day before the much-awaited ICE/Bakkt launch, the CME announced it would be listing bitcoin options in Q1 2020. ICE returned the favor by announcing it would also be launching options contracts but in December this year/

Why are two of the largest exchanges in the world competing so openly for a space that was considered, until recently, as secondary by most industry insiders?

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Almost every week, a new player is announcing its intention to enter the increasingly crowded crypto futures market. Most recently crypto behemoths Binance and Bitfinex launched their own futures products, with varying degrees of success.

This optimism wasn’t always there. The rise of Hong-Kong based BitMEX – home to the most liquid bitcoin contract globally – was for a long time met with skepticism by industry leaders, who dismissed the product as only serving gambling addicts with the use of high leverage.

The crypto futures market really took off in 2018. Volumes increased by a factor of ten compared to 2017 levels – a year widely seen as the peak of the crypto market. Bitcoin futures and other perpetual swap instruments are now trading, on average, 10x more volume than the underlying bitcoin spot market according to data compiled by skew and Bitwise.

(source: skew.com)

In hindsight, it is relatively simple to explain why. As the market entered a prolonged downturn starting in 2018, market participants looked for ways to profit from, or at least hedge against, the falling prices. The growth in futures markets came from that need to short the market.

The market evolved…

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