Jack Paul 
Shift in Crypto Derivatives Market Dynamics
Coinbase’s global head of derivative sales, Usman Naeem, believes traditional finance institutions from the US and Europe are about to significantly increase their participation in crypto derivatives markets. This marks a notable shift from the current landscape where Asia has dominated crypto derivatives activity, accounting for more than three quarters of the market according to Naeem’s estimates.
These new institutional participants differ fundamentally from market makers who primarily provide liquidity. Asset managers, who have fiduciary responsibilities, are looking to use derivatives for investment strategies and hedging purposes rather than just liquidity provision.
Coinbase’s Strategic Moves
The Nasdaq-listed exchange has been preparing for this institutional shift through strategic acquisitions. In 2022, Coinbase purchased FairX, a derivatives platform registered with the Commodity Futures Trading Commission, to offer regulated futures in the US market. This was followed by the $2.9 billion acquisition of Deribit, the largest crypto options exchange, earlier this year.
These moves represent Coinbase’s evolution from its origins as a bitcoin on-ramp in 2012 to capturing significant spot market share, particularly in the US. However, from 2017 onward, innovations like perpetual futures drove most trading volume and liquidity outside the US, mainly to the Asia-Pacific region.
Changing Investment Approaches
Naeem expects the rebalancing from Asia and other regions like Dubai will bring a shift toward strategies more aligned with traditional finance. Traditional money managers aren’t simply looking to buy large amounts of bitcoin outright. Instead, they want to scale their positions in a risk-managed way using derivatives for hedging.
“As more long-term holders come in who are risk managed, I think we’re going to start seeing a volatility service that replicates more what’s happening in traditional finance,” Naeem explained. Rather than pure speculation for large price movements, institutions might sell upside potential to fund downside protection, creating more sophisticated risk management approaches.
Addressing Market Volatility Concerns
When asked about recent market volatility, including the flash crash that saw approximately $7 billion in liquidations, Naeem pointed out that such events aren’t unique to crypto markets. He noted that the industry’s infrastructure generally functioned as intended during these stress periods.
“The liquidations were there; the waterfalls kicked in as designed,” Naeem said, referring to the automated liquidation processes. He emphasized that perpetual futures operate differently from centrally cleared futures or spot markets, requiring tighter risk controls for position unwinding. The entire liquidation event occurred within about 12 minutes, demonstrating the speed of market responses.
This institutional shift toward more sophisticated derivatives usage could bring greater liquidity and stability to crypto markets, creating what Naeem describes as a “more reliable and understandable derivatives market” that better serves traditional finance participants.