India is developing an appetite for crypto derivatives, even as the country's Supreme Court continues to deliberate over the future of the exchange industry.
"We witnessed a huge demand for futures trading among Indian crypto users [in early 2020],” said CoinDCX CEO Sumit Gupta, founder of an exchange aggregator.
Meanwhile, the Indian exchange Unocoin has been embroiled in a court case about the proper regulations for fiat on-ramps since 2018. Unocoin co-founder Sathvik Vishwanath agreed, saying “while we believe it is pretty much the time to launch a derivatives market, the restrictions from Reserve Bank of India on banks is making the on-ramp and off-ramp complicated and is keeping the average customer away.”
Vishwanath said that in the meantime, the exchange still serves 26,000 active monthly users in India with a crypto-only platform and has plans to launch derivatives options within the next few months. Likewise, Delta Exchange CEO Pankaj Balani said his team in Mumbai is focused on growing the derivatives offering in 2020, thanks to his previous experience trading derivatives for the Union Bank of Switzerland before founding the crypto exchange in 2018. In fact, this week Delta Exchange launched new exotic options in bitcoin and ether, allowing users to take leveraged bets on the size of the cryptocurrencies' price moves.
“We see derivatives are one of the areas that is really under-penetrated in crypto,” Balani said. “If you look at daily FX trading ... derivatives are four to five times the size of spot markets, but in crypto this isn’t true yet.”
The biggest challenge for derivatives platforms, he added, is scaling. Balani’s co-founder, Saurabh Goyal, was previously director of engineering at the Indian video streaming platform Hotstar, which routinely handles upwards of 20 million people using the platform at once to watch sports and other live events.
Local startups aren’t the only ones to notice India’s growing demand for cryptocurrency trading options. Back in November, the global exchange giant Binance acquired India’s leading digital assets platform, WazirX. And it looks like by 2021 this might be just one of many companies looking to develop a presence in India, a country of 1 billion people which until now has seen a mere pittance in crypto volumes.
Indeed, Cashaa CEO Kumar Gaurav said his online banking platform now sees more than 150 percent growth in crypto activity every month. As such, he estimates these Indian clients are involved with trading up to 1,000 bitcoin in daily volume, primarily from over-the-counter trading desks looking to get in on the adjacent crypto derivatives boom.
“I expect this trend will continue and anticipate strong demand for crypto options from India in 2020,” Gaurav said. “Before the regulatory hurdles, Indian exchanges were doing $50-60 million in daily volumes and we can expect this volume to come back soon.”
Demand meets supply
Given the unclear regulations in India related to fiat on-ramps, Balani said his exchange will shift to focus on users looking to “hedge against volatility in their portfolios” through large-scale derivatives trading.
These plans include interest rate derivatives and, eventually, Lightning Network functionality, for the speed the bitcoin scaling solution provides.
“In the next couple of months, you’ll see lightning withdrawals and deposits for our customers,” Balani said, describing that first step for the platform’s 25,000 registered traders facilitating more than $300 million in monthly volume so far this year.
The interest rate derivatives will be modeled after decentralized finance (DeFi) platforms like Compound Finance, where traders earn interest on crypto deposits. Delta Exchange researcher Pooja Shah said traders may prefer her startup, rather than incumbents like BitMEX, because Delta offers more variety. According to Delta staff, the exchange has seen more month-over-month growth among Indian users in 2020 than any other nation.
“While the market leader BitMEX has 10 contracts, we have over 30 contracts available for trading,” Shah said. “For example, WRX futures listed on Delta within six hours of its IEO opening on Binance. … This made us the only platform where people could short WRX and lock their IEO gains.”
Most of these Delta users are located in Southeast Asia, where incumbents like OKEx are also looking to grow their derivatives offerings. OKEx Financial Markets Director Lennix Lai said derivatives now makeup nearly 66 percent of the exchange's daily global volume, more than $2 billion in options alone.
“I believe that [the crypto derivatives] market still has some room to grow … maybe 10-20 percent more,” Lai said.
In fact, Gupta of CoinDCX said his platform was seeing such high demand for crypto derivatives that the platform partnered with OKEx for liquidity on the backend. As Gupta’s team works on implementing know-your-customer (KYC) procedures to become a fully-fledged exchange, even more competitors are flocking to capitalize on Indian demand for crypto derivatives.
Ashish Singhal, CEO of the exchange CoinSwitch.co, said Indian traders have “started to embrace” crypto derivatives in particular.
"India’s National Stock Exchange (NSE) has beaten CME Group to be the world’s top derivatives exchange, showing India’s appetite for the derivatives market,” said Ashish Singhal, CEO of the exchange CoinSwitch.co. He added that Indian traders have “started to embrace” crypto derivatives in particular. Traders are familiar with it and regulators appear to be less concerned about crypto-to-crypto transactions than about fiat on-ramps.
“In all likelihood, 2020 may be the game-changer for the crypto in India,” said Unocoin’s Vishwanath.
Omkar Godbole contributed reporting.
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