SEC policymakers may be partial to derivatives products: Report

TokenInsight recently published its latest report on Bitcoin and other cryptocurrency derivatives exchanges, a report that looked into the market trends around Futures and Options contracts in 2019, as well as the SEC’s regulatory patterns around the approval of crypto-funds. According to the same, there were 238 days when BitMEX’s trading volume was over twice Binance’s volume, with only eight days when the opposite happened.

OKEx and Huobi Futures saw 2.24 and 2.19 times the volume of their spot trading markets, and the report stated that if the spot market continues to be sluggish, “it can be predicted that the total derivatives market volume in 2020 will grow to more than twice the spot trading volume.” TokenInsight’s analysts predict that the derivatives industry could maintain the current overall market condition in 2020, adding that competition in derivatives products will soon intensify. They also said that each exchange will have the opportunity to acquire more investors from Options or index contracts trading.

The report went on to suggest that policymakers may prefer derivatives products. The U.S. Securities and Exchange Commission (SEC) approved the Stone Ridge Trust VI Bitcoin Futures fund under NYDIG in December 2019. This was the first cryptocurrency fund to be approved, with all the applications being sent to the SEC after 2016.

Winklevoss Capital’s fund was rejected within months of its application in 2016. The VanEck and SolidX funds were rejected in a similar fashion in 2018. However, these were all funds based on spot markets. The NYDIG fund was approved within a month of its application in November 2019. “Given that the fund has the important feature of not being directly exposed to the cryptocurrency spot market,” said the report, “the rapid approval of the SEC may mean the importance of policymakers on the derivatives market.”

“Cryptocurrency derivative system is getting better and perpetual contracts are the mainstream products.”

The analysts also noted that the existing derivatives system can already meet the needs of most market participants and that the increase in richness of derivatives categories is “a sign of a sound cryptocurrency exchange system.” BitMEX, Deribit, Binance JEX, and FTX have all listed Options or Options-like products for trading on their respective platforms. However, general investors cannot sell options at BitMEX, and Binance JEX charges sellers up to an additional margin of 100 JEX per contract. FTX was the only exchange reported to provide a friendly requirement for Options issuance.

“It can be predicted that in 2020, there may be more cryptocurrency derivatives exchanges listing options.”

This led to the analysts concluding that sellers in the cryptocurrency Options market are mostly exchanges or their anchor market makers. However, the report also noted that there is a possibility that most traders will actually bet against the exchanges after paying the Option premium. “The exchange or its market maker implements a two-way selling strategy,” it said, adding, “therefore, although the “ticket” (option premium) change price changes from time to time, the exchange and market maker will always obtain a stable return (ie, option premium).”