Acuiti Crypto Derivatives Expert Network Expects Crypto Exchange Consolidation

The recent turbulence in the cryptocurrency derivatives market is set to bring in structural changes, according to Acuitis’ Q3 Crypto Derivatives Management Insight Report.

The changes are expected both through the exit of some market participants and through changed attitudes to practices such as risk management and influence.

The report, which is based on the views of the Acuiti Crypto Derivatives Expert Network, a group of top executives from around the world from hedge funds, banks, brokers, prop traders, asset managers and exchanges, said that in the medium term, regulation will level the playing field for traditional and native firms.

“One way for this to happen is consolidation, a trend that was already observable in the market’s last bull phase,” Network said.

The network strongly expects that crypto exchanges will now consolidate further.

The network also expects that competition for market shares will increase.

A majority of the network (79%) believes that a new player exchange in crypto options can build significant market shares against, for example, current incumbent Deribit.

The network also believes that banks will play a strong role in DeFi, with 58% believing that they will play a significant role in permissioned DeFi (only 3% thought this would happen in pure DeFI).

However, a significant proportion (35%) still believed that banks would not have any involvement with DeFi in the future.

Recent market events have also raised inevitable questions about how crypto markets currently operate.

The areas where the network had the most critical concerns were the financial stability of lenders and native primary brokers and risk management practices.

The expert network also expects a tougher regulatory approach from the authorities to be a lasting result of recent falls in crypto prices.

“This is already playing out to some degree. In its pursuit of an insider trading case against a former Coinbase manager, the SEC has signaled that it considers at least nine Cryptoassets to be securities,” the report said.

Ultimately, the network expects greater regulation to favor TradFi. A minority of the network saw regulation achieving the same benefits for native and DeFI markets.

Most saw volumes fall to some extent on these platforms.

While regulation is largely seen as necessary to grow the institutional market for crypto derivatives, the network remains apprehensive about how optimally finalized frameworks will be for market growth.

The EU is seen as the most likely major jurisdiction to be the first to develop a framework that will enable significant institutional participation.

The US, Singapore and the UK were seen as likely to follow closely behind.

However, only 10% of respondents believed that the EU would create the best regulatory environment for institutional use of digital assets.

In this regard, the US was seen as the most promising regulatory regime supported by 35% of respondents.

Duncan Trenholme, Co-Head of Digital Assets, TP ICAP, quoted in the report, said that regulatory noise around crypto is mainly focused on spot assets, where there is still significant uncertainty.

He noted that it is important to separate the regulation of spot assets from the derivative products.

“The first we are still waiting for clarity, the second fits mostly within existing frameworks,” he said.

“It’s been great to see regulators working with the industry and being proactive. As these frameworks start to fall into place for spot assets, it’s really going to bring in a wave of traditional financial firms. The regulatory ambiguity is definitely a barrier for them to enter this asset class at the moment,” he added.