The US exchange Gemini seems to want to take advantage of the difficult moment of other exchanges to launch its own crypto derivatives exchange platform.
Gemini did not have a good year in 2022, so much so that it was even accused by the SEC of wrongdoing.
In reality, it is the entire crypto exchange industry that has had problems in the US, and these problems are continuing into 2023.
Crypto exchanges in the US
The United States of America is by far the largest market in the world for cryptocurrencies, if only because of the huge availability of capital in the financial markets.
Since they have also long been the world leader in financial markets, over the years they have gained deep and well-structured regulation, but it barely touches on the crypto sector.
The most heated issue right now in the US for crypto markets is precisely its regulation, because there is still no specific law that regulates them in a particular way, and it is not easy to apply rules that are generally valid for financial markets.
In this respect, the most obvious case is the failure of the FTX exchange, which was one of the giants in the industry. It had been founded in the US, and served primarily the US market, but had moved its headquarters to the Bahamas, where there were fewer controls.
Because of poor corporate, and particularly financial, management, coupled with almost non-existent controls, it squandered their clients’ funds effectively causing them to lose everything they had deposited on the platform.
Although similar things have happened to perfectly regulated banks, the fact that FTX was allowed to use clients’ funds to finance its own expenses is something absurd and anomalous.
In theory, those who manage customer funds should instead keep the custody of those funds separate from that of their own funds, and should not use customer funds to finance business expenses.
This is just one example of the difference still present at the legal and regulatory level between how traditional financial markets are regulated and controlled, and how crypto markets are not yet regulated and controlled.
First and foremost to suffer are the customers of ostensibly regulated intermediaries, such as FTX or Celsius, and the intermediaries themselves.
In this sort of jungle it may also happen that foreign exchanges, such as Binance, end up operating for years without the proper licenses, due to the difficulty on the part of regulators to verify and intervene.
Gemini and the announcement of crypto derivatives
The only major US exchange that has chosen a different approach, in this respect, is Gemini itself.
However, despite choosing to be based in the state with the most stringent regulations regarding financial markets, namely New York, even Gemini eventually ran into problems with the authorities from a regulatory perspective.
While even the most regulated crypto exchange in the US can run into legal problems due to non-compliance with regulations, it can be expected that it will be even more difficult for others to comply with all regulations at all times.
However, this does not detract from the fact that of all the crypto exchanges operating in the US, Gemini is probably the one with the greatest attitude and ease of compliance.
In particular, the biggest problem, as the recent Binance affair shows, is with derivatives exchanges, such as futures and options.
In fact, in order to offer derivatives trading services in the US, it is necessary to obtain some kind of license, namely registration with the CFTC. Binance for example does not have it, so it should not offer US customers the ability to trade crypto derivatives.
As such, on the one hand Gemini is coming off a very difficult year, while on the other hand there are big problems in the US for exchanges that want to offer crypto derivatives exchanges.
Gemini: the new platform for crypto derivatives
At this point, and given that Gemini is in theory the exchange most likely to be in compliance with all US regulations, it would not be surprising at all if it decided to enter the crypto derivatives market right now.
According to The Information, Gemini is working on an overseas crypto derivatives exchange, with the goal of offering perpetual futures exchanges to its clients.
The Information cites anonymous sources familiar with the matter as saying that the decision to set up the derivatives exchange abroad is due to the fact that perpetual futures are banned for retail traders in the United States, as they are considered a highly risky financial product due to the fact that they have no expiration date and can be traded with high leverage.
Moreover, it appears that Coinbase is also working on something similar, but right now Coinbase itself is under the investment lens of US authorities. Gemini, on the other hand, for now seems to have resolved the problems it had with the SEC.
The scenario Gemini is working on would be to act as a market maker for a foreign operation so as not to violate US federal and New York state laws.
It is not surprising that in such an environment some exchanges that are able to offer crypto derivatives trading without particular problems are benefiting.
One exchange that is reaping the most benefits from this situation is Bitget, which is not a US platform but has a US MSB license issued by FinCEN for cryptocurrency trading in the United States of America.
Indeed, in 2022 it was named one of the top 3 crypto exchanges by BCG and came in the top 10 crypto derivatives exchanges by aggregate Open Interest.
Bitget was one of the main beneficiaries of the FTX collapse, in terms of number of users and trading volume, perhaps also because it has a user protection fund and was one of the first to activate a reserve testing mechanism.
While it was not the only exchange to benefit from the exit of the FTX behemoth, there were actually not many crypto exchanges that managed to absorb users fleeing FTX.
For example, although Gemini is one of the leading US crypto exchanges, it seems to have hardly been able to benefit from the exit from the scene of one of its main competitors, perhaps precisely because users fleeing FTX preferred foreign exchanges with fewer restrictions.
The future is regulated
However, should the US succeed in imposing robust and effective regulation on crypto exchanges, it is possible to imagine that in particular large capital in the US will end up with a greater preference for US-based and fully regulated exchanges.
At this time, that scenario still seems remote, considering that there are still many limitations for crypto exchanges that want to offer their services to US clients, and considering that the progress of the bill for crypto regulation in the US seems to be going slowly.
However, the future does seem to lie in requiring even centralized crypto operators to have similar robustness and integrity to traditional exchanges.
The decentralized world is a different matter, but when people are forced to entrust their money to people or organizations that become the exclusive custodians of it, they should at least be assured that they are able to store and manage it as thoroughly as possible. This is not yet possible in the crypto markets, but sooner or later it may become possible.