Genesis Trading identifies potential drivers for the crypto industry

The market for crypto derivatives is poised for a significant rise in volumes amid liquidity problems in the spot trading sector and a shift toward derivative instruments. This conclusion was reached by Genesis Trading analysts.

“As spot market liquidity deteriorates and the depth of the order book narrows chronically, it is increasingly evident that a substantial portion of future crypto volumes growth will be driven by derivatives,” the firm’s Q2 report said.

Experts highlighted a number of key developments in the digital-asset derivatives space during the period, including:

• Deribit’s year-to-date high in daily options trading volume (as bitcoin breached the $30,000 level to the upside);
• Coinbase, the leading U.S. crypto platform for institutions, launched fixed-expiry futures on digital gold;
• In July, volumes of cryptocurrency options trading rose by about 25% on the leading North American venue for such products — CME.

Analysts say derivatives are becoming an important tool for institutional investors to access cryptocurrencies. They also noted a drift away from futures toward options.

However, the turnover of options in the crypto industry is roughly one-tenth of spot-market activity, whereas in traditional finance the situation is the reverse.

“The notional value of US equity options first exceeded the traded value of the underlying assets in 2021. If TradFi follows this trend, the crypto options market could rise tenfold from current levels,” the experts said.

Another important second-quarter development for Genesis Trading was the entry of a group of large firms led by BlackRock into the industry, with filings for spot Bitcoin-ETFs. The launch of such products has historically served as a catalyst for the price of the underlying asset, experts emphasized.

In July, the U.S. Securities and Exchange Commission began reviewing five proposals for the creation of exchange-traded Bitcoin funds.