Traditional Finance Enters Crypto Derivatives
Coinbase’s global head of derivative sales, Usman Naeem, believes we’re about to see a significant shift in who’s using crypto derivatives. For years, the majority of activity—maybe three-quarters of it—came from Asia. But that’s changing now.
Asset managers from the US and Europe are starting to pay attention to regulated crypto derivatives. These aren’t market makers just providing liquidity. They’re institutions with fiduciary duties, looking to either speculate or run more complex strategies. They’re a different type of player entirely.
Coinbase’s Strategic Moves
Coinbase has been preparing for this shift. Back in 2022, they acquired FairX, a CFTC-regulated derivatives platform. Then earlier this year, they bought Deribit for $2.9 billion. These moves weren’t accidental.
The company started in 2012 as basically an on-ramp for Bitcoin. They grew into an exchange and captured much of the US spot market. But around 2017, things changed. Innovations like perpetual futures drove most of the volume and liquidity outside the US, mainly to Asia.
Changing Strategies and Risk Management
Traditional money managers don’t just want to buy $10 or $20 million worth of Bitcoin outright. They’re looking to scale up in a risk-managed way. That means using derivatives to hedge positions.
As more long-term, risk-managed holders enter the space, we’ll see volatility services that look more like traditional finance. Instead of just speculating on a 50% Bitcoin rally, maybe they’ll sell some upside to fund insurance for the downside. These dynamics could bring more liquidity and stability to the market.
Addressing Market Volatility
But what about those flash crashes we see sometimes? Earlier this month, about $7 billion got liquidated in just minutes. Doesn’t that kind of volatility scare institutions away?
Naeem points out that flash crashes aren’t unique to crypto. The infrastructure mostly worked during that event. Liquidations happened, risk waterfalls kicked in as designed. Perpetual futures work differently than centrally cleared futures or spot trading—they need tighter risk controls.
Everything happened in about 12 minutes. That’s fast, but the systems handled it. Perhaps institutions understand that volatility comes with the territory in emerging markets.
I think we’re at an interesting inflection point. The crypto derivatives market has been dominated by certain regions and player types for years. Now we’re seeing the beginnings of a rebalancing. It’s not going to happen overnight, but the direction seems clear.
Traditional finance institutions are starting to see crypto derivatives as legitimate tools for their strategies. They’re not just jumping in blindly—they’re approaching it with the same risk management mindset they use in traditional markets. That could change the character of the entire crypto derivatives space over time.
