The trading volume for crypto spot derivatives experienced a record spike in March. A report by Bloomberg notes a surge of 108% to $2.94 trillion in spot trading volume, the most substantial figure recorded since May 2021, surpassing advancements in derivatives trading.

Elevated Trading Observed in Crypto Spot Derivatives

CCData indicates that March saw a milestone for Bitcoin as the overall volume for both spot and derivatives trades on centralized exchanges almost reached twice its typical amount, hitting a peak of $9.1 trillion. CCData’s March Exchange Review report highlighted a 108% rise in spot trades amounting to $2.94 trillion—since May 2021, a record-breaking figure that exceeded the rise in derivatives. Trading volumes on Binance, the leading cryptocurrency exchange globally, achieved new highs similar to those of May 2021. Derivatives experienced an 89.7% uptick to $2.91 trillion, while spot trading saw a 121% jump to $1.12 trillion.

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Centralized Derivatives Dominated by Non-US Markets

EY reports the categorization of crypto derivatives into centralized and decentralized markets, with the former seeing the most significant volumes outside the US. In contrast, the CME Group controls over 60% of the US’s monthly derivatives volume as per the data from September 2023.

The decentralized derivatives segment, though relatively smaller, is gaining traction due to its enhanced security and transparency aspects. dYdX protocol stands out as a key player in the DeFi derivatives space.

Assessing the Risks in the Crypto Spot Derivatives Market

Several types of risks are inherent in the lifecycle of trading cryptocurrency derivatives, including market, counterparty credit, liquidity, operational, legal, and compliance risks. There is a necessity for complex risk modeling and calculations, such as value at risk (VaR) and funding valuation adjustment (FVA), due to these risks.

These inherent risks underscore the importance of robust controls and a comprehensive risk management approach in cryptocurrency derivatives trading. Special challenges for risk modeling in crypto derivatives are created by the high volatility of the underlying assets, the 24/7 trading nature, enforceability issues, crypto collateral management, regulatory complexities, and market concentration.

Further Reading: Crypto Stocks Surge Amidst Market Rally