Cryptocurrency Derivatives Trading Volumes Fall 24% Lower than Pre-FTX

Derivatives trading volumes for cryptocurrency exchanges fall 24% lower than pre-FTX levels

Since November 14, exchange-traded derivatives volumes have dropped lower than pre-FTX levels, averaging around $305.6 billion in the last 5 weeks, between November 14 to December 12, across cryptocurrency exchanges Binance, Bybit, OKX and dYdX. Comparatively, this is about -24% or $99.1 billion lower than pre-FTX levels in the week of October 3.

A potential reason for the decline in derivatives trading volumes could be that traders have stopped or reduced their activity following FTX’s collapse. It is also common for trading activity to slow down toward the end of year, during the holiday season.

Decentralized crypto exchange dYdX saw a $1.8 billion (1.5X) increase, within a week

FTX was previously the second largest centralized derivatives market, behind Binance. In the early stages after its collapse, other exchanges, particularly Binance, gained market share. However, rumors of Binance being in poor financial health around December 14 have since stirred up fear, uncertainty and doubt—otherwise known as ‘FUD’ by the crypto community—resulting in reports of increased user withdrawals, and Bitcoin prices dropping -9.1% from $18,320 to $16,650, between December 14 and December 16. Some traders who have moved funds off Binance may likely have shifted to trade on decentralized crypto exchange dYdX, explaining its increased volumes.

Between December 5 and December 12, derivatives trading volumes on dYdX climbed ~1.5X or $1.8 billion, from $3.4 billion to $5.2 billion. The average daily derivatives trading volume on dYdX is $738 million, in the week of December 12.

Derivatives trading volumes spiked 46% amid the FTX crisis, but falls 61% the week after

When news of the FTX crisis first broke, cryptocurrency prices fell across the board. This spurred derivatives trading volumes to jump 46.7%, from $581.4 billion in the week of October 31, to $853.1 billion in the week of November 7, as investors hedged positions after the FTX shock. Market participants and retail investors jumped on the opportunity to short the market amid FTX's collapse, resulting in the extreme increase in trading volume.

This spike comes after a 44.7% increase in volumes for exchange-traded derivatives from October 3 through October 31, before the FTX collapse occurred.

98.5% or $840.4 billion of the $853.1 billion derivatives trading volume were from centralized cryptocurrency exchanges. Even with withdrawals paused, derivatives trading was still allowed on FTX – evidenced in the now-defunct exchange contributing 6.2% to total derivatives trading volumes across the top 3 centralized cryptocurrency exchanges and dYdX in the week of November 7. Binance was the largest contributor to the spike, at $547.5 billion (64%), followed by OKX $131.5 billion (15%), then Bybit $108.8 billion (13%).

Methodology

This study examines daily derivatives trading volumes, grouped by week, across the Top 3 centralized cryptocurrency exchanges that offer cryptocurrency derivatives trading, namely, Binance, Bybit, OKX, as well as decentralized cryptocurrency exchange dYdX, from October 1 to December 18, 2022.

Trading volumes for FTX are also included in this study through November 9, 2022. The exchange is now defunct.

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What are cryptocurrency derivatives?

Cryptocurrency derivatives are financial instruments that allow traders and investors to speculate on the price movements of an underlying cryptocurrency asset or to hedge their positions. Common types of cryptocurrency derivatives include futures, options, and swaps.

A cryptocurrency futures contract obligates the buyer to purchase the asset at a predetermined price on a specific date in the future, while a cryptocurrency option gives the holder the right, but not the obligation, to buy or sell the asset at a predetermined price on or before a specific date. A cryptocurrency swap is an agreement between two parties to exchange cash flows or assets based on the underlying asset's price movements.

Looking for more information on second order effects, post-FTX collapse? Check out this study on how Bitcoin whale addresses on-chain reached an all-year high.