FTX chief calls crypto derivatives ‘misunderstood’ instruments

Critics of crypto derivatives do not understand how important a role these financial instruments play in boosting liquidity and efficiency in digital-asset markets. This was stated by FTX chief Sam Bankman-Fried in an interview with Forbes.

\”It’s somewhat a misunderstood area. Many people note that the trading volume of the crypto-derivatives market is higher than the spot market, and that’s true. But that’s true for any asset class in the world. The reason is that derivatives are somewhat more efficient if you don’t need immediate delivery. […] I think this adds liquidity to markets and makes them overall more efficient,\” he explained.

Bankman-Fried also noted that derivative instruments offer investors high flexibility, since they do not burden them with custody-related issues of storing digital assets.

He acknowledged that in some periods the effectiveness of derivatives indeed raises doubts. Specifically, during liquidations, when the market moves against holders of margin positions.

In July FTX reduced the size of maximum leverage for its clients, limiting it to 20x. At the time, Bankman-Fried explained that this decision was due to a lack of demand for high leverage among traders.

\”Initially we did not have this feature, but it was in high demand. They [the users] refused to use the platform if we did not add such an option,\” he told Forbes.

Bankman-Fried stressed that high-margin trading is not unique to cryptocurrency exchanges. He pointed out that \”there are many places\” where leverage of more than 100x is offered on stock trades.

\”That [high-leverage trading] is not something I considered particularly important or useful for a healthy cryptocurrency market. I don’t think regulators will be thrilled by such practices, and I felt it was right to remove it,\” explained the head of FTX.

Speaking about the future development of his exchange, Bankman-Fried noted that its strategy is multi-pronged. FTX is considering acquiring ‘apps that would create a larger base of loyal users’.

The company does not rule out acquiring some competing platforms, as well as buying firms with licenses in jurisdictions of interest to FTX.

According to Bankman-Fried, in the near future FTX does not plan to go public. However the company may take such a step if it \”would be beneficial for the business\”.

Earlier, Bankman-Fried admitted that spends five hours a day on regulatory and licensing questions.

Earlier, the American subsidiary of the Bitcoin exchange FTX planned to open client access to trading crypto derivatives by the end of 2021.