Billion dollar bitcoin funds are reshaping the crypto derivatives market

Billion dollar bitcoin funds are reshaping the crypto derivatives market

Genesis Global Trading—the New York-based crypto firm that bills itself as a prime brokerage—turned over more than $8 billion worth of derivatives last quarter.

Joshua Lim is the man behind those billions as the firm's Head of Derivatives. Lim joined The Scoop this week to unpack Genesis' second quarter report, explaining how new preferences among investors and traders have shaped the make up of derivatives. He told The Block's Frank Chaparro that the growth of crypto-native hedge funds have increased their need for derivatives, including options and futures, to hedge their positions.

"I think it's mostly crypto negative hedge funds that we deal with that were more willing to engage with us on hedging strategies," he said. As bitcoin was approaching $55,000, he said many were "looking for attractive pricing on the implied volatility across two different strikes such that they could buy some cheap sort of protection for their portfolio."

That desire to hedge among crypto players was echoed in Genesis' report, which was released Wednesday:

"As BTC/USD marched to new highs in April, a number of our forward-thinking crypto-native hedge fund and corporate treasury counterparties meaningfully stepped up their systematic put-hedging programs."

As for the second-quarter specifically, Lim pointed out a number of trends that played out, including the tightening of the spread between spot and futures and a reversal of the popular basis trade that aims to profit from that spread.

In this episode Lim also unpacks:

  • How the derivatives market in crypto evolved from linear products to a wide-range of products
  • How the spread between spot and futures can indicate how frothy the market is
  • The big takeaways from Genesis' second quarter report
  • What needs to happen in the NFT market for it to support derivatives
  • The emergence of market neutral strategies in crypto
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