HomeCrypto NewsExchangesDerivatives still show no signs of cooling down...

Derivatives still show no signs of cooling down even when the market hibernates

- Advertisement -

Overall crypto trading volume is on the decline this year along with the rest of the market, but there is one area that continues to show good volume despite the downturn: derivatives .

Growth in trading volume is still despite strong growth in recent 1 month (Source: Bybit Market Overview)

Since 2017, Bitcoin derivatives have matured to become traders' preferred method of price discovery. The trading volume of futures, options and perpetuals on some cryptocurrencies is currently lower than for spot trading.

Spot trading refers to the simple swap of one token for another, while in derivatives trading you operate a contract with the underlying crypto asset. In the former, you need to buy/sell assets while in the latter, you can operate without holding assets, allowing traders to operate and profit on both bearish and bullish markets.

- Advertisement -

While both Spot and Derivatives have shown declines in trading volume, 60% YTD for Spots and 50% for Bitcoin Futures, according to in Glassno, Derivatives trading still has a large trading volume of $330 billion due to its flexibility to operate in both market conditions.

Types of derivative contracts

A futures contract is a derivative contract that allows investors to speculate on the future price of an asset, like Bitcoin or Ethereum. As mentioned before, when trading Bitcoin Futures, you do not need to buy Bitcoin and you can trade on the future value of the asset, in either direction.

Options contracts are similar to futures contracts in that they are wagered on the future price of an asset, except they give the holder the right but not the obligation to pay the contract, while futures contracts must paid or transferred.

While the combined open interest of both futures and options is down about 60% year-over-year in dollar terms – which is in line with the rest of the crypto market – futures Futures and options still have a combined volume of over $330 billion across all exchanges. This is more than a third of the current combined market capitalization for all crypto assets and represents a remarkable performance of all risky assets this year. In a bear market, derivatives offer the ability to trade on the devaluation of an asset without having to hold the asset, just like in Spot trading.

One way traders are using derivatives is to hedge their positions by buying “puts,” which gives them the right but not the obligation to sell at a certain price. certain date in the future. This allows them to hedge against possible losses during a bear market.

The cost of buying an options contract is the only risk the trader has to bear, giving them a limited downside. The lower the price of the underlying asset, the more valuable the contract gives them unlimited upside potential.

Many traders prefer options to shorting cryptocurrencies, especially during bearish periods because options are significantly safer in terms of limiting losses. Shorting an asset gives traders NO protection against sudden price swings and the “short squeeze” that occurs when a sudden increase in price causes mass liquidation of short positions. , pushing the price even higher.

A further development in the crypto derivatives market is a shift in the preferred settlement asset. Derivatives contracts are typically settled in Bitcoin (BTC) or dollar-pegged stablecoins like Tether (USDT) or Circle's USD Coin (USDC).

While USDT is still the dominant stablecoin, it has recently been losing ground against USDC, due to FUD and market sentiment following the TerraUSD crash. This time last year, USDT accounted for 56% of the market share; but that number has dropped to 45% today and USDC becomes the second largest coin with 32%.

Paying options and other derivatives with USDC is a popular move because stablecoins give traders the insight they need to speculate on future prices, and USDC is now considered transparent. than other centralized stablecoins. This trend could further increase USDC's market share.

Although options and futures trading has declined with the rest of the crypto market, they still represent an influential block of capital deployed to the crypto market. And if last year's events haven't lost $330 billion or so, it looks like crypto derivatives are here to stay.

About Bybit

Bybit is a cryptocurrency exchange founded in March 3, providing a professional platform where crypto traders can find an extremely fast execution engine, customer service great and multilingual community support.

Bybit provides groundbreaking spot and derivatives trading services, mining and staking products, NFT marketplace and API support to retail traders and institutional customers around the world, and is committed to strives to become the most trusted platform in the emerging virtual asset segment.

Bybit is proud to be a partner of the Formula 1 (F1) racing team, Oracle Red Bull Racing, eSports teams NAVI, Astralis, Alliance, Virtus.pro and Oracle Red Bull Racing Esports, and the football teams of association Borussia Dortmund and Avispa Fukuoka.

For more details, please visit: https://www.bybit.com/

For updates, please follow Bybit's social media platforms on:

Rate this post
- Advertisement -

Maybe you are interested

Protocols benefiting from 'the Merge' on Ethereum

The consolidation and upgrade of the mainnet proof-of-work (PoW) of Ethereum and the Beacon Chain proof-of-stake (PoS) is approaching and will be explosive.

What is liquidity? The role of liquidity when choosing a cryptocurrency exchange

To measure the health of the market or a particular coin, you can look at the trading volume...

CoinEx Charity actively supports education with a fund of up to millions of USD

Charity is not only the pursuit of a noble cause but also bringing people happiness from...

Huobi Founder Is Looking To Sell His Shares For $3 Billion

Leon Li could sell his stake in Huobi at a valuation of $2 billion to $3 billion, some...

Game On for GameFi platform supported by Bybit – Yeeha Games

SINGAPORE, 11/8/2022 - Yeeha Games, a $50 million-funded GameFi platform announced its entry into the world of web3 gaming...

Related posts

- Advertisement -