Cryptocurrency exchanges are making big inroads into the US derivatives market as demand from retail customers expands. 

In January, derivative market volume hit almost $3tn. This accounted for almost 60% of total crypto volume, outstripping all other trading for the first time.

Spot volumes fell 30% to $1.81tn, driven down by the market slump.

The derivatives market now represents 61.3% of the total crypto market – CryptoCompare.

According to CryptoCompare, the rise in derivatives activity can be attributed to an increase in hedging and speculation.

January saw 1,882 BTC option contracts traded in the CME, up 28.6% from the month prior. This is the highest amount of BTC options traded since Dec 2020, when 3,749 options were traded. 

BTC futures contract volumes rose 23.9% in Jan to 181,400. However, it shies in comparison to a 59.4% increase in ETH futures contracts (116,200 ETH) in the same period.

Big exchanges are snapping up smaller ones

Crypto exchanges are ramping up activity in the tightly-regulated US market by acquiring smaller exchanges that already hold licenses.

Last month, Coinbase announced plans to buy Chicago-based FairX. The plan is to use the latter’s infrastructure to bring more consumer customers to the derivatives market. FairX is a small, Chicago-based Commodity Futures Trading Commission-regulated derivates exchange.

Late last year, Singapore-based Crypto.com spent $216m on two assets owned by the UK’s IG Group and licensed in the US.

Additionally, Sam Bankman-Fried’s FTX, added US derivatives platform LedgerX to its roster. Bankman-Fried is a frequent advocate of greater crypto regulation, a stance that sets him apart from many of his competitors. 

Larger crypto exchanges are buying CFTC-regulated platforms as a bridge to offer derivative products to retail clients.  

“In the US, the crypto exchanges can’t offer leverage on spot crypto without being a regulated futures commission merchant,” Rosario Ingargiola, CEO of crypto settlement firm Bosonic told the FT.com.

Late last year, BitMEX exchange was hit with a $100m fine after allegedly operating a crypto trading platform in the US  without regulatory permission. The trial of four of the exchange’s co-founders on money laundering charges is due to start next month.

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