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Tuesday, December 6, 2022

With the bear market in full throttle, crypto derivatives retain their popularity

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The 2022 cryptocurrency bear market has been the worst on record as most Bitcoin merchants are underwater and proceed to promote at a loss. In response to the fast decline of token costs, some buyers have fled to safe-haven belongings; some have exited the market fully and others have perplexingly turned to the enigmatic market of crypto derivatives. 

With regards to this, Cointelegraph spoke to BingX’s model lead Emerson Li. BingX is a Singaporean social-based cryptocurrency trade identified for its leaderboards the place customers can compete with others for returns on investments in addition to share concepts amongst their followers. The trade processed round $319 million in buying and selling quantity inside the previous 24 hours, primarily consisting of derivates. Regarding the latest market downturn, here is what Li needed to say:

“BingX’s customers are additionally proliferating; in contrast with Q1 2022, Users quantity elevated by 70% in the second quarter, and transaction volumes doubling since this spherical of slumps. We consider that its demand for derivatives continues to be rising as a result of it permits customers to revenue from falling costs, a function that different merchandise should not have.”

During bear markets, merchants can buy derivatives known as put options to either hedge their positions or speculate that the value of underlying tokens will fall. While this can be done by simply shorting the coin, violent and periodic bear market rallies can lead to theoretically infinite losses on one’s short position. In addition, a lack of liquidity for borrowing coins to short may lead to exchanges charging high-interest rates on one’s positions. On the other hand, the put buyer’s losses are theoretically limited to the premium they paid for the derivative, and there are no additional interest fees. 

Li went on to explain that BingX is also seeing a sharp increase in deposits as of late. “Since high market volatility is suitable for the derivatives market, we see more users participating in such transactions and stimulating more demand for deposits.”

Money also appears to be flowing back to CeFi products from DeFi protocols. “For high-risk products such as DeFi staking, we believe traders have panicked under the recent market, affected by the Terra (LUNA) — since renamed Terra Classic (LUNC) — affair and the problems with many DeFi protocols. Users’ danger urge for food has decreased, and demand has declined,” stated Li. 

Indeed, dYdX, a decentralized crypto exchange identified for its margin and perpetual contract merchandise, noticed its weekly buying and selling quantity fall roughly 90% from the $12.5 billion witnessed from Oct 24 to Oct 30 final 12 months. However, the buying and selling quantity continues to be a number of magnitudes larger than one 12 months in the past, partly on account of the aforementioned risk-hedging tailwind. 

Risk-wise, it will seem that the worst is over as a spike in liquidations on dYdX, primarily in the Ethereum and Bitcoin markets, has dissipated since mid-June. Experts from Glassnode famous tokens held in wallet addresses by each new buyers and crypto whales had been rising meaningfully amid the sell-off.