Growth of crypto volumes will be in derivatives, Genesis report says

Quick Take

  • Options are increasingly seen as the go-to instrument for institutional players entering crypto, a report said.
  • CME is seen as a more stable option for top tier intuitional investors participating in crypto derivatives. 

A significant portion of the future growth of crypto volumes will be in derivatives, according to a report by Genesis.

If trends in traditional finance derivatives are followed, “the crypto options market has room to grow ten-fold from current levels,” the Genesis markets report for the second quarter of 2023 said. Options were also reported as becoming the go-to instrument for institutional players entering crypto.

“We are seeing growth from flows of institutional investors into crypto derivatives. CME crypto options had a great month in July, the highest in three months, with a significant pickup in ETH volumes. Deribit has continued to hit comparatively high monthly volume totals,” Gordon Grant, managing director of sales and trading at Genesis, told The Block.

He added that the CME is seen as a putatively more stable venue for some top-tier institutional investors than traditional, crypto-native exchanges. “They are less excited about interacting with mainstay crypto exchanges than with the perceived stability of the CME. Institutional investors, especially the largest global allocators, see the CME as having a brand associated with safety and reliability,” Grant added.

Grant also pointed to the new products being rolled out for institutional investors to participate in crypto markets, such as the CME’s newly released ETH/BTC ratio futures and Deribit’s volatility futures.

In contrast, the Genesis MD added that Coinbase’s futures volumes are still nascent. He also highlighted Kraken’s attempt to get into the futures space, where, so far, they “were not able to see a critical mass.”

Contrasting this growth of derivative volumes, spot market liquidity is suffering. “The spot order book depth is chronically flagging,” the report added. Grant links the drying up of liquidity in spot markets to “on and off-ramp difficulties with spot exchanges in different jurisdictions."

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