The top three crypto spot exchanges have recorded just over $25 billion in trading volume in the last 24 hours, according to CoinGecko. The top three exchanges for derivatives volume have done $70 billion in trades during that span.
No wonder, then, that exchanges which only offer simple buying and selling want to get into futures and options contracts for Bitcoin and other cryptocurrencies.
Coinbase, the only publicly traded cryptocurrency exchange in the U.S., announced on Wednesday that it will acquire derivatives exchange FairX to do just that. “Over time we plan to leverage FairX’s infrastructure to offer crypto derivatives to all Coinbase customers in the US,” it wrote.
While FairX isn’t exactly a household name, it has one major selling point: It’s already regulated by the U.S. Commodity Futures Trading Commission (CFTC). The CFTC has oversight of derivatives markets for all sorts of things beyond just commodities. Derivatives are contracts based on another asset that allow people to buy or sell that asset (or the cash equivalent) if it reaches a certain price. Futures contracts lock in a commitment, while options contracts give the buyer or seller the choice of going through with the trade.
Derivatives are useful for hedging investments. They’re also useful for just plain betting on future prices. A recent report from Arcane Research found that speculators were increasingly turning to leveraged trades (borrowing from a platform to bet more than they put down) in derivatives markets at the turn of the new year.
Coinbase says the FairX acquisition, which is expected to be finalized by the end of March, will help “make the derivatives market more approachable” for its customers.
“These products are in high demand from investors who seek to effectively manage risk, execute complex trading strategies, and gain exposure to crypto outside of existing spot markets,” it wrote.
It’s not the only U.S.-based exchange to make such a play into derivatives. In August, FTX.US, the American affiliate of Sam Bankman-Fried’s global exchange, went ahead with plans to buy LedgerX—another derivatives trading platform regulated by the CFTC. And just last month, Singapore-based Crypto.com revealed the purchase of North American Derivatives Exchange, giving it an entry point into the nascent U.S. crypto derivatives market.