The crypto derivatives market has been rocked in recent months by the collapse of FTX, one of its biggest players. As a result, other major players stepped in to fill the gaps.
Surprisingly, Binance and OKX, the two dominant players in the financial derivatives market, they failed to take advantage of the collapse of FTX. In fact, two stock exchanges lost their market share.
In contrast, smaller players such as Bybit and Bitget have seen their derivatives market share increase during this period. Bitget saw the highest increase and moved from 3% to 11% of the derivatives market.
Overall, the crypto derivatives market has seen a 50% decline since the FTX crash in March 2021. This is most likely due to a decrease in institutional participation in the space.
Small gamers seem to have benefited from this trend, thanks to cleaner user interfaces and retail-focused features like social trading. As the crypto derivatives market becomes more retail focused, exchanges will have to attract retail traders.
How did the FTX crash affect derivatives trading?
The collapse of FTX in late 2022 sent shockwaves through the cryptocurrency trading community. The event highlighted the fragility of the cryptocurrency market, and made traders question the solvency of centralized cryptocurrency exchanges.
The ripples from the FTX collapse have greatly affected the derivatives market. Traders with positions on the exchange were unable to access their funds, which led to an infection spreading across the cryptocurrency industry. At the same time, the market downturn has led to a rise in liquidations and reduced derivatives trading volume in the space.
According to a report by Token Insight, the trading volume of the 10 largest centralized exchanges dropped more than 50% in 2022.
However, cryptocurrency traders have not been deterred from using complex financial instruments. After the collapse of FTX, other exchanges rushed to capture an increasing share of the crypto derivatives market.
Binance dominance is dropping a bit, and Bitget is gaining the most
Binance is the largest centralized cryptocurrency exchange and has held the majority of crypto derivatives trading over the past two years. However, after the collapse of FTX, Binance failed to capitalize on this market segment. The largest cryptocurrency exchange has seen a slight decline in its market dominance, from 59% to 58%.
The second largest derivatives trading platform, OKX, fared worse. Its derivatives market share fell from 20% to 14%. Surprisingly, the largest players in derivatives trading failed to take advantage of the FTX crash.
While Binance and OKX fell, smaller exchanges saw significant gains. Bybit’s share of the derivatives market has increased from 8% to 11% since the FTX crash. Derivatives trading platform First has 95% of its turnover in derivatives.
Derivatives generate more volume than spot deals. However, Bybit is still out, with both OKX (86%) and Binance (75%) having smaller volume coming from derivatives.
Bitget’s rally shows a trend towards retailing in derivatives
Bitget, a Singapore-based crypto derivatives platform, has seen the largest increase in its share in the derivatives market. Bitget’s share increased from 3% to 11%, becoming Third largest derivatives exchange according to the trading volume.
In fact, Bitget was the only exchange that saw an increase in open interest, or the total number of derivative contracts outstanding. Bitget saw a significant increase in this segment, from $841 million to $3.74 billion, or a 344% increase.
One possible reason behind the increase in Bitget was the popularity of social trading products. these Copy trading features It allows users to automatically copy the trading strategies of expert traders.
Gracie Chen, Managing Director of Bitget, revealed that Bitget’s focus on retail has been crucial to its rise. While other exchanges focus on serving institutions and high-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 play a critical role in helping to increase crypto adoption. Chen said the focus on retailers starts from the design stage to implementation.
“When designing product attributes, interest protection mechanisms, and product boundaries, we always keep retail users in mind,” Chen said. It also claimed that retail customers get better service and better prices 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."
The collapse of FTX reshaped the crypto derivatives market and tilted it more in favor of retail traders. This means that small traders will likely benefit from more competitive offerings from the exchanges.