Overall, the performance of the cryptocurrency trading market in the second quarter was not as good as in the first quarter. The main reason was that the market fluctuated very little throughout the month of June and remained sideways for a long time. The market sentiment brought about by the Bitcoin halving has been exhausted, and when the money-making effect is low, the entire market is relatively quiet.
According to our research, it is believed that the derivatives market, especially the competition in contract transactions, will become intensified in the near future. The core reason for this is because of the incomplete product forms of different exchanges at this stage. When similar products (forward perpetual, reverse perpetual, delivery, and options) are complete, the competitive landscape will be broken again.
Through our research and judgment, in the long run, USDT contracts will occupy the mainstream market. Therefore, at this stage, exchanges with leading position in forward contracts will have a greater advantage. The reverse contract market will continue to exist. At this stage, large positions still account for a relatively high proportion of reverse contracts, especially in the BitMEX exchange.
The transaction volume of deliverable contracts rose rapidly in the first quarter of this year, among which Huobi is the most attractive. Recently Binance has also launched deliverable contracts. We judge that more exchanges will also launch deliverable contracts in the near future. In the future, the market share of Huobi and OKEx’s deliverable contracts is likely to fall; Binance’s deliverable contracts will also occupy part of the market, while Bybit will also gain a certain market share if it launches deliverable contracts.
For users, it is supposed that the leverage ratio of the overall contract market should be between 20–50 times. The use of high leverage ratio will shorten the life cycle of ordinary users. At this stage, the life cycle of contract users is about two months. One point that needs attention is that many platforms adopt a “customer loss” model. After users lose money in the industry, the funds earned by exchanges, and a large part of it is actually transferred out of the industry. Therefore, high-risk, high-leverage and other irregular behaviors in the derivatives field are actually consuming the vitality of the industry and users. Exchanges have to face the problems of high customer acquisition costs and high retention costs.
Specialization is the future of derivatives trading. Contract fund transactions will account for more trading volume; but at this stage, the imperfect cryptocurrency custody infrastructure will limit the development of GP and LP; and the “Counterparty Risk” that LP faced is also an important factor.
The price war between different exchanges is to begin, but it has not yet officially started; Transaction fees are still at a relatively expensive stage compared to the traditional market, unfortunately, most ordinary users care little about it. In addition, there is a big gap among different exchanges in API, document specification and quality, and the imperfect infrastructure is also a key factor preventing many professional investors or funds from entering the market. Some exchanges’ API and documentation lacks of proper standard and maintenance.
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