The Cryptocurrency Derivatives Market Demonstrates Stable Growth

The cryptocurrency market has successfully recovered from a two-month decline from late May to late July and is showing steady growth. Bitcoin (BTC) and Ethereum (ETH) are leading the way with impressive gains over the past two weeks. The market is seeing price levels reached back in May this year.

In addition to rising prices, the cryptocurrency derivatives market is attracting increased interest from investors. According to Bybt, the open interest (OI) in Bitcoin options has doubled across all global exchanges offering the product. It rose from an annual low of $3.63 billion on June 26 to a 90-day high of $7.86 billion on August 14.

CryptoQuant data shows institutions are buying BTC in the same way they did at the end of 2020.

Similar growth is observed in the performance of the Ethereum options market. OI in Ethereum options jumped 75% from $2.42 billion on July 30 to a two-month high of $4.26 billion on August 14. The annual growth of this market was 846%.

The cryptocurrency derivatives market is still at an early stage of its development, as it only appeared in the second quarter of 2020.

According to the Chicago Mercantile Exchange (CME), as of August 11, the average daily volume (ADV) of bitcoin futures has grown by almost 30% from 8,231 contracts YTD in 2020 to 10,667 contracts YTD in 2021.

Since its launch on Feb 8, CME Ether futures have had an ADV of 2,864 contracts with open interest averaging 2,436 contracts. A record trading volume of 11,980 contracts was sold on May 19, and a record OI of 3,977 contracts was sold on June 1.

In the case of CME Micro BTC futures, the ADV is 21,667 contracts and their average OI is 19,990 contracts. A record high of 94,770 contracts was sold on May 19 and a record open interest of 38,073 contracts was reached on June 1.

According to some experts, the surge in OI in August was not only due to price increases but also due to the increase in the number of open contracts after the large expiration of BTC options in the second quarter.

This means that the current growth in OI is organic and not just a side effect of the notional value increase.

Due to the colossal growth of the crypto derivatives market, regulators are skeptical about this sector. But even as regulators are taking tough action on cryptocurrency derivatives, the futures and options markets have continued to show tremendous growth this year.

According to Inca Digital, hundreds of US traders are evading local regulations and trading cryptocurrency derivatives on exchanges such as FTX and Binance. These platforms have official US counterparts that do not offer derivative products on their platforms due to regulatory issues.

Perhaps the growth of the crypto derivatives market is inevitable in the future as liquidity increases. Investors need instruments that provide hedging and risk solutions, especially in these times of high volatility.

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