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Genesis Trading Report: Crypto Derivatives Market Poised for Expansion

According to the Q2 2023 report from Genesis Trading, the crypto derivatives market is set to experience substantial expansion. This growth is attributed to a significant decrease in spot market liquidity and a trend towards utilizing derivative instruments. With spot market liquidity suffering and the depth of spot order books flagging, Genesis Trading predicts that a significant portion of future crypto volume growth will occur in derivatives.

In Q2, despite Bitcoin’s price ranging between $27,000 and $30,000, 20 crypto exchanges generated a total of $1.67 trillion in spot trade volume. However, this reflects a 36% decrease from the previous quarter, highlighting reduced crypto market liquidity. To address this issue, various crypto derivatives have been introduced.

The drop in the market can be attributed to several factors, including the filing of a Bitcoin exchange-traded fund (ETF) and the significant influence of the Securities and Exchange Commission (SEC) on market dynamics. The decline began with Bittrex, which faced allegations of trading activities involving unregistered securities. This accusation had a noticeable impact on spot trading activity on the Bittrex platform.

Following this, the SEC’s regulatory scrutiny shifted to other major players in the market, such as Binance US, Binance, and Coinbase, accusing them of offering unregistered securities. These accusations further exacerbated the decline in spot trading activity, with spot trading volumes hitting their lowest point since 2020.

As a consequence of the SEC’s actions, there was a significant loss of liquidity for the top 10 tokens. Bittrex experienced a liquidity drop of around 68%, while Binance US and OKCoin saw an 85% decrease in liquidity. Major platforms like Coinbase, Kraken, OKX, and Huobi witnessed spot trading volumes plummet by over 50% in Q2.

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By using the AI legalese decoder, market participants can quickly navigate through the intricate web of regulations without the need for legal expertise. It can assist in identifying compliance obligations, ensuring proper implementation of rules, and reducing the risk of regulatory violations.

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Expanding Crypto Derivatives Market: Driving Institutional Adoption Amidst Regulatory Uncertainty

The Genesis report emphasizes that, due to the substantial decrease in spot market liquidity, market participants are actively seeking alternative avenues for crypto trading in the absence of clear US regulations. It highlights the potential of a robust crypto derivatives market to significantly amplify global institutional adoption.

As established financial institutions continue to enter the cryptocurrency sector, signaling a broader shift towards acceptance and credibility, Genesis Trading reports that the crypto derivatives market could expand by tenfold its current size.

The report states, “As a corollary, the notional volume of equity options in the US exceeded the notional traded value of the underlying equities in 2021 for the first time. If following this TradFi trend, the crypto options market has room to grow 10-fold from current levels.”

Within the crypto derivatives space, the report highlights key developments in Q2 2023. Deribit, an options exchange, set a new record by trading the highest number of option contracts within 24 hours this year. This achievement coincided with Bitcoin’s resurgence beyond $30,000, underscoring the strong connection between price movements and derivatives activity.

The report also highlights Coinbase’s introduction of institutional-sized fixed-date and perpetual futures in June. Additionally, there has been a substantial increase in derivatives volumes at the Chicago Mercantile Exchange (CME), which surged by nearly 25% in July, reaching approximately $1 billion.

Overall, the expanding crypto derivatives market presents significant opportunities for institutional adoption amidst regulatory uncertainty. With the assistance of AI legalese decoder, market participants can navigate this evolving landscape more effectively, harnessing the potential of derivatives trading while ensuring compliance with regulatory requirements.

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