- Two of the biggest exchanges, Binance and OKX, failed to grow their derivatives market share following the FTX collapse.
- Bitget saw the highest increase, from 3% to 11%.
- The crypto derivatives market dropped 50% since the FTX crash, likely due to institutional exit.
- Derivatives trading will likely become more retail-focused in the future.
The crypto derivatives market has been shaken up in recent months following the collapse of FTX, one of its largest players. As a result, other major players stepped in to fill the gaps.
Surprisingly, Binance and OKX, the two dominant players in the derivatives market, have failed to capitalize on FTX’s collapse. In fact, two exchanges lost market share.
In contrast, smaller players like Bybit and Bitget saw a surge in their derivatives market share during this period. Bitget saw the highest increase and went from 3% to 11% of the derivatives market.
Overall, the crypto derivatives market has seen a 50% drop since FTX crashed in March 2021. This is likely due to a drop in institutional participation in the space.
Smaller players apparently capitalized on that trend, thanks to cleaner user interfaces and retail-focused features such as social trading. As the crypto derivatives market becomes more retail-focused, exchanges will have to appeal to retail traders.
How the FTX Crash Impacted Derivatives Trading
The collapse of FTX in late 2022 sent shockwaves through the crypto trading community. The event highlighted the fragility of the crypto market, and has made traders question the solvency of centralized crypto exchanges.
Ripples from the FTX crash significantly impacted the derivatives market. Traders with positions on the exchange could not access their funds, which led to significant contagion across the crypto industry. At the same time, the market downturn led to a spike in liquidations and decreased the volume of derivatives trading in the space.
According to a report by Token Insight, trading volume on the top 10 centralized exchanges dropped more than 50% in 2022.
Still, crypto traders have not been deterred from using complex financial instruments. After the FTX’s collapse, other exchanges scrambled to take over an increased share of the crypto derivatives market.
Binance Dominance Drops Slightly, Bitget Gains The Most
Binance is the largest centralized crypto exchange, and it has held the majority of crypto derivatives trading for the past couple of years. However, after FTX’s collapse, Binance failed to capitalize on that segment of the market. The largest crypto exchange saw a slight drop in its dominance of the market, from 59% to 58%.
The second-largest derivatives trading platform OKX fared even worse. Its share of the derivatives market dropped from 20% to 14%. Surprisingly, the two largest players in the derivatives trade failed to take advantage of the FTX collapse.
While Binance and OKX fell, smaller exchanges saw significant gains. Bybit’s share of the derivatives market increased from 8% to 11% since the FTX collapse. This derivatives-first trading platform has 95% of its volume in derivatives.
Derivatives generate a larger amount of volume than spot trades. However, Bybit is still an outlier, as both OKX (86%) and Binance (75%) have a smaller volume coming from derivatives.
Bitget’s Surge Shows Trend Towards Retail in Derivatives
Bitget, a Seychelles-registered crypto derivatives platform, saw the largest increase in its share of the derivatives market. Bitget’s share increased from 3% to 11%, becoming the third-largest derivatives exchange by trading volume.
In fact, Bitget was the only exchange that saw an increase in open interest, or the total number of outstanding derivative contracts. Bitget achieved a significant increase in that segment, from $841 million to $3.74 billion, or a 344% rise.
One of the potential reasons behind Bitget’s surge was the popularity of its social trading products. These copy-trading features allow users to copy the trading strategies of expert traders automatically.
Gracy Chen, Managing Director of Bitget, revealed that Bitget’s retail focus was crucial for its rise. While other exchanges focus on serving institutions and large-net-worth traders, Bitget opts for a retail-first approach.
"We have consistently adhered to putting our retail users first, going against many of our peers in the industry," Chen told DailyCoin.
Retail users have a crucial role in helping drive crypto adoption. The focus on retail traders starts from the design phase to implementation, said Chen.
“When designing product attributes, interest protection mechanisms, and product thresholds, we always have retail users in mind,” Chen said. She also claimed that retail customers get better service and more favorable rates at Bitget.
"We believe retail investors are an essential momentum driver in the development of the crypto industry," Chen concluded. "As a forward-looking exchange, we believe this focus will pay off in the long run."
On the Flipside
- It is important to note that trading volumes don’t necessarily indicate profitability. While some exchanges saw an increase in their derivatives market share, this doesn’t account for marketing expenses.
Why You Should Care
The FTX crash has reshaped the crypto derivatives market and tipped it more in favor of retail traders. This means that small traders will likely benefit from more competitive offerings from exchanges.