Binance loses market share in derivatives after a drop in trading

Several centralized exchanges saw a decline in activity in September, and one of them is Binance. The exchange experienced a significant drop in trading activity over the past month. Historically, September marks the end of the slow period, giving way to a busier quarter that begins with “Uptober.” However, things don’t always follow this pattern.

With events like increased market liquidity after the Federal Reserve’s interest rate cuts and the upcoming U.S. elections, trading activity on centralized exchanges is expected to be impacted in the coming months.

Despite the decline in activity, Binance still leads the global spot trading market by volume among other centralized exchanges.

Binance loses derivatives market share

Derivatives trading volume on Binance fell by about 21% to $1.25 trillion in September. This is the lowest level since October 2023, according to a report by CCData.

The derivatives market is a segment of the financial market where investors trade derivative instruments, meaning those whose value is derived from an underlying asset or group of assets. Some examples of the derivatives market include futures, forwards, and swaps.

Derivatives facilitate price discovery and can reflect market sentiment and expectations about asset prices, as one of their primary functions is risk mitigation.

With the decline in activity on the exchange, Binance’s market share in derivatives stood at 40.7% at the end of last month. This is the lowest share since September 2020.

This decline also impacted spot trading volume, which dropped by 22.9% to $344 billion. It is the lowest monthly spot trading volume recorded since November 2023. Consequently, this decline in spot trading reduced Binance’s market share by about 27%.

But this wasn’t the only loss for the exchange. Combining both spot and derivatives, Binance’s overall market share dropped to 36.6%. This is the lowest level since September 2020.

Crypto.com gains traction

Amid Binance’s losses, Crypto.com has gained more prominence among centralized exchanges. Both its spot and derivatives volumes increased by approximately 40.2% and 42.8%. In September, these volumes reached $134 billion and $149 billion, respectively.

With a combined market share of 11%, Crypto.com has become the fourth-largest exchange in terms of volume. However, overall, the rest of the trading activity across centralized exchanges mirrored Binance’s decline.

These decreases are in line with the typical seasonal trend of lower trading activity during this time of year, as historical trends show.

Monthly spot trading volumes across exchanges dropped by 17.2% to $1.27 trillion, while derivatives trading volumes decreased by 16.9% to $3.07 trillion.

However, this may change, especially as the U.S. Federal Reserve intensifies interest rate cuts. This could boost liquidity and capital flows into riskier assets, such as cryptocurrencies.

Is the derivatives market important?

Derivatives allow investors to gain exposure to various cryptocurrencies, helping them diversify their investments. This helps maintain a diversified portfolio that is more protected against the extreme price volatility of the market.

A derivatives trade is a financial contract based on the speculated future value of the underlying asset. Cryptocurrency derivatives are an essential part of the economy, allowing investors to employ sophisticated strategies, such as pair trading or arbitrage.

Derivatives also enable investors to “short sell” an asset, meaning betting on price declines. Without a derivatives market, long-term investors cannot hedge a cryptocurrency portfolio in bear markets.

Another important aspect of the derivatives market is that it promotes price discovery, the process of determining an asset’s value based on various factors, from market liquidity to information flow.

In summary, the use of derivative trading enables strategic actions in the financial environment. This can help a trader achieve higher profits, protect a portfolio, or hedge other assets. They also assist cryptocurrency investors in protecting against various risks.

In the cryptocurrency market, derivatives are still a growing segment, attracting trillions in volume each month. Since Binance is one of the largest, if not the largest, exchange in the market, its derivative losses could have significant implications.