derivatives

FTX Slashes Leverage Limit from 100x to 20x — Community Suspects Competitors Will Follow Example

July 26, 2021 Bitcoin.com

Bank of Russia Advises Stock Exchanges to Avoid Trading Crypto Instruments

July 23, 2021 Bitcoin.com

Bitcoin traders watch $32K ahead of Friday’s $330M BTC options expiry

July 22, 2021 Coin Telegraph

<div>Bitcoin traders watch K ahead of Friday's 0M BTC options expiry</div>

Bulls managed to find some momentum, but holding the $32,000 support level will determine who is the victor of Friday's $330 million BTC options expiry.

This Friday's weekly Bitcoin (BTC) options expiry currently holds a $330 million open interest. Considering the recent struggle to regain the $32,000 support, this event is an important test of bulls' willingness to display reversion signs.

On July 21, Alameda Research announced that the company made Bitcoin purchases below $30,000, and Sam Trabucco, the firm's quantitative trader, mentioned that the narrative for BTC could turn bullish because of the ongoing fear, uncertainty and doubt (FUD) caused by the China BTC mining ban, Grayscale GBTC unlock and recovery in stock markets.

*BTC/USD price at Coinbase. Source: TradingView*

The chart above shows that the current downtrend channel, initiated three weeks ago, might be invalidated if the price breaks the $32,200 resistance. The move seems to have been sparked by Elon Musk's statement that his firm SpaceX also holds Bitcoin.

During the July 21 meet-up with Cathie Wood and Jack Dorsey, Musk said that despite the rumors, he completely opposes recent speculations that Tesla has been selling some of its Bitcoin position.

Elon Musk clarifies Tesla hasn't sold bitcoin after sparking sell-off https://t.co/jPxK5jBm3m pic.twitter.com/4uA5xB8OwB
— New York Post (@nypost) May 17, 2021

It is worth noting that the rumors had some backing only because Musk gave conflicting signals on social networks. Moreover, Tesla had previously sold 10% of its Bitcoin holdings in the previous month.

The $32,000 support is crucial for bulls

Friday's options expiry might be the first strength test of this recent bounce. If bulls want to set $32,000 as a support level, there's no better way than causing the most damage possible to the neutral-to-bearish put (sell) options.

*Bitcoin aggregate options for July 23. Source: Bybt*

The first signal that bears have been trying to dominate is the put-to-call ratio. The 0.81 reading reflects a smaller amount of neutral-to-bullish call (buy) options for the July 23 expiry.

However, bears might have set themselves a trap because 96% of the put options used $32,000 or lower strike prices. If Bitcoin manages to stay above that level at 8:00 AM UTC on Friday, only $8 million put options will take part in the expiry.

On the other hand, there is $29 million worth of call options up to the $32,000 strike price. This $21 million difference favors bulls. Albeit small, it is completely opposite from an expiry below $32,000.

If $32,000 fails to hold, bears will have a $9 million lead because only 9% of the call options have been placed at $31,000 or lower.

Neither outcome is of extreme significance, but the profits could be used for the larger upcoming monthly options expiry on July 30. This is the primary reason why bulls need to hold their ground to keep the current momentum.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Ethereum must innovate beyond just DApps for DeFi degens: Vitalik Buterin

July 22, 2021 Coin Telegraph

Coin Telegraph

As second layer scaling matures for Ethereum, Vitalik Buterin urges the community to grow beyond the confines of DeFi.

During his keynote at the EthCC conference in Paris, Ethereum co-founder and lead developer Vitalik Buterin implored the Ethereum community to innovate beyond the confines of decentralized finance.

Describing non-financial utilities as “the most interesting part of the vision of general-purpose blockchains,” Buterin lamented that financial applications currently “dominate the Ethereum space.”

“Being defined by DeFi is better than being defined by nothing. But it needs to go further.”

Buterin outlines several non-financial applications for Ethereum, including decentralized social media, identity verification and attestation, and retroactive public goods funding.

“Moving beyond DeFi is not about being against DeFi. I actually think [...] the most interesting Ethereum applications are going to combine elements of finance and non-finance,” said Buterin.

“Maybe a few years from now we’ll have a lot of really exciting things [...] that are just providing all kind of very diverse and real value to all kinds of people, not just within the Ethereum ecosystem, but also going far beyond it as well,” he added.

Buterin has already begun work on public goods funding. In a July 21 blog post co-authored by Buterin, layer-two scaling solution, Optimism, pledged to fund open source development through a retroactive rewards protocol, with Optimism committing all profits generated through sequencing to the initiative.

Why DeFi?

Buterin attributes the Ethereum community’s preoccupation with DeFi to two main factors.

Firstly, Vitalik asserted that “finance is just the area where centralized technology sucks the most,” concluding that finance offers a larger domain for decentralization than other centralized industries:

“I can send you a centralized email and you will get it within one second. And sure, maybe various intelligence agencies will read it, but at least you could read it and at least you can read it one second from now. International bank wires do not work that way.”

Buterin also emphasized the prevalence of high fees in pushing the sector toward financial applications, noting:

“The degens can pay for it, the apes can pay for it, the orangutans can pay for it. But if we start talking about a decentralized social media, where every tweet becomes an NFT, then that can’t work if you have $5.22 transaction fees.”

However, Buterin offered that the challenge of high transaction fees “is now being solved” by Ethereum’s growing ecosystem of layer-two networks.

With work to mitigate transaction costs on Ethereum currently underway, Buterin asserts that now is the time to begin exploring how Ethereum can be used to tackle other issues, stating: “the Ethereum ecosystem has to expand beyond just making tokens that help with trading other tokens.”

“If you just take this narrow thing that is DeFi, and you keep pushing it to infinity [...] you’re just gonna get tokens that give you profit from yield farming other currencies that are financial derivatives between other yield farming tokens,” he said.

Despite noting that financial derivatives offer some value to the sector, Buterin warned of the systemic risk associated with complex derivative products, concluding: “Let’s not just do DeFi.”

“These things are valuable up to layer-one and layer-two, [...] but once you get to layer-six, you’re actually increasing the financial instability and the risk this whole thing is going to collapse.”

Bitcoin price hits $32K but derivatives metrics still show signs of weakness

July 21, 2021 Coin Telegraph

Bitcoin price hits K but derivatives metrics still show signs of weakness

bitcoin futures

Bitcoin price rallied 8.5% to recover the $32,000 level, but derivatives data shows pro traders still feel apprehensive.

There's no doubt that the last couple of months have been bearish for Bitcoin (BTC), but throughout this entire period, derivatives indicators have been relatively neutral. This could be because cryptocurrencies have a strong track record of volatility, and even 55% corrections from all-time highs are expected.

After two months of struggling to sustain the $30,000 support and finally losing it on July 20, the futures premium and options skew turned bearish. Even PlanB's stock-to-flow valuation model was not expecting prices below $30,000 for the current month. The model uses the stock-to-flow ratio, which is defined by the current number of Bitcoin in circulation and the yearly issuance of newly mined Bitcoin.

On-chain data is positive, but derivatives indicators are not

On-chain analytics show that the monthly average of 36,000 BTC withdrawn from exchanges is usually interpreted as accumulation. However, this superficial analysis fails to acknowledge the increased use of tokenized Bitcoin in decentralized finance (DeFi) applications.

*RenBTC and Wrapped BTC aggregate supply. Source: Cointrader.pro*

The chart above shows that 40,660 BTC have been added to Wrapped Bitcoin (WBTC) and RenBTC (RENBTC) over the past three months. This number does not consider deposits at BlockFi, Nexo, Len and the multiple services that provide yield on user's cryptocurrency deposits.

Removing Bitcoin previously deposited on exchanges could be a sign that traders' intent to sell in the short term is reduced. Still, at the same time, it might also represent investors seeking higher returns in other avenues. In short, these coins might have been sitting on exchanges as collateral or as a long-term holding.

As previously mentioned, derivatives indicators flipping negative should hold more weight than assumptions on the bullish or bearish interpretation of on-chain data. In an initial analysis, analysts should review the futures contracts premium, which is also known as the basis.

This indicator allows investors to understand how bullish or bearish professional traders are because it measures the difference between monthly futures contracts and the current spot market price.

A neutral basis rate should be between 7% to 15% annualized. This price difference is caused by sellers demanding more money to postpone settlement, a situation known as contango.

*Huobi 1-month BTC futures basis. Source: Skew*

However, when this premium fades or turns negative, this is a very bearish scenario known as backwardation. July 20 was the first time that the indicator sustained a negative 2.5% level for longer than twelve hours.

At the moment, professional traders are likely leaning bearish after Bitcoin lost the critical $30,000 support, but further confirmation can be gained from looking at options markets.

Pro traders are seeking protective put options

Unlike futures contracts, there are two different instruments in options. Call options provide the buyer with upside price protection, and the put option is a right to sell Bitcoin at a fixed price in the future. Put options are generally used in neutral-to-bearish strategies.

*Bitcoin options put-to-call ratio. Source: Cryptorank.io*

Whenever the put-to-call ratio increases, it means the open interest on these neutral-to-bearish contracts is growing, and it is usually interpreted as a negative signal. The most recent data at 0.66 still favors the call options, but these instruments gradually lose ground.

Currently, there's enough evidence of bearishness in the futures and options markets, and this hasn't been the case over the past two months. This suggests that even pro traders lack confidence after the $30,000 support failed to hold in the past 48-hours.

Multi-asset exchange wins crypto trading license in Bermuda

July 21, 2021 Coin Telegraph

Bermuda

Bermuda Premier David Burt said that 24 Exchange’s regulatory approval is the “first license of its kind to be issued in Bermuda.”

A multi-asset class trading firm in Bermuda has secured major regulatory approval allowing it to offer cryptocurrency trading services.

Over-the-counter trading platform 24 Exchange has acquired a “Class T” digital asset business licence from the Bermuda Monetary Authority (BMA) to roll out cryptocurrency trading on its institutional-grade platform. The firm officially announced Tuesday that the new license was granted under the Bermuda Digital Asset Business Act 2018.

With the newly received license, 24 Exchange is planning to launch physical crypto trading to its institutional clients later this summer. Specializing in foreign exchange non-deliverable forwards (NDFs), or two-party cash-settled derivatives contracts, 24 Exchange also expects to introduce a trading capability with NDFs in Bitcoin (BTC) and Ether (ETH).

In order to secure the license, 24 Exchange has been working closely with the Bermuda Government’s Office of FinTech, the Bermuda Business Development Agency, as well as Bermuda Premier David Burt. The Premier reportedly highlighted that the latest regulatory approval is the “first license of its kind to be issued in Bermuda,” and that the state is looking forward to “having these innovative digital pioneers blazing new trails” in the country.

Founded in 2019, 24 Exchange is focused on providing institutional investors with diverse asset exposures 24 hours a day and at the lowest possible cost. The company intends to expand its platform’s capability in the future to include all possible assets.

“We intend to expand our platform's trading capability in the future to encompass all the other assets on our exchange – all at best available rates. 24 Exchange's unique NDF offering will significantly facilitate the institutional adoption of crypto products across the globe,” 24 Exchange CEO and founder Dmitri Galinov said.

As previously reported by Cointelegraph, Bermuda has emerged as a crypto-friendly jurisdiction in recent years, welcoming operations of multiple global crypto businesses in the country. Last October, BMA granted a “Class F” digital asset business licence to crypto exchange Bittrex Global, allowing it to offer crypto services like futures trading. Bermuda is also reportedly the first government over the world to accept Circle’s stablecoin USD Coin (USDC) for tax payments.

FTX smashes crypto funding record with $900m raise to become exchange decacorn

July 20, 2021 Coin Telegraph

FTX smashes crypto funding record with 0m raise to become exchange decacorn

Coin Telegraph

The crypto derivatives exchange has seen its valuation soar over the past year, reflecting the rapid growth of digital assets over the same period.

FTX, the cryptocurrency derivatives exchange founded by Sam Bankman-Fried, has closed a $900 million funding round – highlighting once again that venture capitalists are shrugging off market turmoil in their quest to uncover quality blockchain plays.

The Series B investment round had over 60 participants, including Softbank, Sequoia Capital, Coinbase Ventures, Multicoin, VanEck and the Paul Tudor Jones Family.

With the raise, FTX’s valuation has grown to $18 billion, making it one of the largest cryptocurrency companies in the world. Just one year ago, the derivatives exchange had a valuation of $1.2 billion.

Founded in 2018, FTX operates one of the largest crypto derivatives businesses in the world, with average daily volumes exceeding $10 billion. With a head office in Hong Kong and a parent company in Antigua, the company has been highly active in acquisitions and branding, having bought out Blockfolio for $150 million in August 2020. In March of this year, the exchange secured the naming rights to the Miami Heat’s stadium for the next 19 years.

Despite the recent market turmoil engulfing cryptocurrencies, venture firms continue to back crypto-focused startups with greater conviction. As Cointelegraph reported, Silicon Valley’s Andreessen Horowitz launched a $2.2 billion crypto venture fund last month, the largest in history.

Over the past year, several crypto exchanges have grown to become unicorns – a term used by venture capitalists to describe startups with a valuation of $1 billion or more. Latin America, for example, is now home to two trading platforms worth over $2 billion. A decacorn is a company worth over $10 billion.

Here’s how altcoin futures volumes and the USD lending rate signal market crashes

July 19, 2021 Coin Telegraph

Altcoins

Data shows that the dollar lending rate and futures volumes of select altcoins can be tracked to pinpoint overheated markets before a crash.

Every once in a while, a new indicator pops out that can be used to detect price tops and bottoms in the market. This assertion is even more evident in cryptocurrencies because the data comes from exchanges and on-chain data extracted from the blockchain.

These indicators are constantly monitored and commented on by analysts and traders. Some of the lesser-known metrics use data from altcoin derivatives volumes and the Bitfinex U.S. dollar lending rate.

Altcoin volumes in futures markets indicate overheat

The futures contract volume is usually triple that of, or even five times higher than, regular spot markets. This phenomenon is not exclusive to cryptocurrency markets, as these contracts allow leverage trading, but the comparison isn't exactly fair because the contracts are synthetic products, while Bitcoin (BTC) is digitally scarce.

By measuring the market share of Bitcoin, Ether (ETH) and the remaining altcoins, it is possible to analyze exactly what traders are focusing on.

*Bitcoin, Ether and altcoins futures volume. Source: Coinalyze*

The chart above shows that Bitcoin and Ether represented 65% to 85% of the aggregate volume in March. Still, as altcoins gained relevance, this figure dropped to 45% for the first time ever on April 6. 11 days later (April 17), the total cryptocurrency market capitalization tanked 20%.

This phenomenon repeated itself on May 6 as the Bitcoin and Ether market share in derivatives volumes reached a historical low at 39%. On May 10, the total market capitalization dropped 12%. It seems like too much of a coincidence, and it makes sense to consider whether the market overheats whenever the market share held by altcoin derivatives spikes.

There are multiple reasons to relate a sharp increase in altcoin volume to excessive optimism. For example, changing focus from Bitcoin and Ether indicates that investors no longer see much upside and are seeking options elsewhere.

The Bitfinex U.S. dollar lending rate usually spikes ahead of crashes

Margin trading allows an investor to leverage their trading position by borrowing money. For example, borrowing dolla will allow one to buy Bitcoin, thus increasing their exposure. Although there's an interest rate involved with borrowing, the trader expects BTC's price appreciation to compensate for it.

Whenever there's excessive demand for the dollar lending rate, it is usually an indicator that the market is becoming reckless.

*Daily U.S. dollar lending rate (above) and Bitcoin price in USD (below). Source: Bitfinex*

The above data shows that such an event happened four times in 2021, and the last one occurred on April 13, one day before the $65,800 all-time high for Bitcoin. For example, reaching a 0.16% daily rate is equivalent to a 5% monthly fee, which is costly even for the most optimistic investors.

Traders should keep in mind that markets can remain irrational longer than any investor can remain solvent. This means that irrationality can prevail for long periods, including altcoin euphoria and the excessive use of leverage by buyers.

Whenever multiple indicators point to an overheating market, traders should always consider reducing their positions. Going forward, the altcoin futures market share and the Bitfinex dollar lending rate should be carefully monitored when searching for market tops.

Here’s one way to trade Bitcoin even as BTC price teeters over an abyss

July 18, 2021 Coin Telegraph

bitcoin options

Bears have pushed Bitcoin price to the lowest rungs of its current range, but savvy traders can still generate a nice profit via the Iron Condor options strategy.

In the last 29 days, Bitcoin (BTC) has been ranging from $31,000 to $36,000 as the impact of the recent China ban and a $1.4 billion Grayscale GBTC share unlocking continue to pressure markets.

China’s government implemented a series of measures to curb cryptocurrency mining and trading by ordering the immediate shut down of some operations and instructing domestic banks to suspend the bank accounts of entities involved in the industry.

Meanwhile, the $21 billion trust fund Grayscale and its GBTC security is facing a troublesome period as institutional investors’ 6-month lock up comes to an end, creating a potential $1.4 billion sell-off. However, it's worth noting that the 654,000 BTC tokens under management will not be moved on the market.

As a result of these factors, Bitcoin price has been stuck in a range for months and generally traders appear to be sitting on their hands until clarity on the entire situation clears up.

While traders are skilled at using perpetual futures contracts, most are unaware of additional instruments that can be used to maximize their gains. This holds especially true when markets range sideways and creates a perfect scenario for trading options.

For example, one can build an options strategy that maximizes gains even when there is not much price action.

By using both call (buy) and put (sell) options, a trader can create strategies to generate gains in sideways markets. These can be used in bullish and bearish circumstances, and most derivatives exchanges offer accessible options platforms.

The Iron Condor strategy favors a tight range

The Iron Condor is a neutral strategy that consists of selling a $32,000 put to create positive exposure to Bitcoin while simultaneously selling a $34,000 call to reduce gains above that level. These trades were modelled from Bitcoin price at $31,750 and this trade uses an Aug. 27 expiry (40 days).

Profit / Loss estimate. Source: Deribit Position Builder

Two out-of-the-money (small odds) positions are needed to protect from the possible price crashes below $28,000 or Bitcoin appreciation above $38,000. These additional trades will give the trader peace of mind while also reducing the margin (collateral) requirements.

Any outcome on Aug. 27 between $29,200 (down 8%) and $36,660 (up 15%) yields a positive result. The maximum gain happens between $31,800 and $34,200, resulting in a 0.09 Bitcoin profit. On the other hand, the worst outcome is a 0.045 Bitcoin loss.

A similar structure could be deployed for Ethereum (ETH) options but traders should account for the London hard fork on Aug. 4, which could potentially induce sharper volatility.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Historically low spot volumes and investor indecision weigh on Bitcoin price

July 17, 2021 Coin Telegraph

Bitcoin Analysis

Bitcoin price struggles to gain momentum as historically low spot volumes and a strengthening dollar result in widespread indecision from most traders.

If one word could be used to describe how the majority of participants in the cryptocurrency ecosystem feel about the near-term outlook for Bitcoin (BTC) it would be 'undecided', as mixed signals from all manner of indicators have many traders waiting for a significant move in either direction before planning their next entry point.

A new report from Delphi Digital took a macro look at Bitcoin's current price action and found that a variety of factors, including low exchange volumes and the strengthening U.S. dollar have weighed heavily on the top cryptocurrency.

*BTC/USDT 1-day chart. Source:* *TradingView*

Bitcoin's recent dip to $31,000 adds to the aura of fear that currently envelops the crypto market and analysts are now warning that failure to close above $31,000 could see BTC drop to the $29,000 to $24,000 zone.

Here are three areas of focus that Delphi Digital highlights as being the most impactful on the short-term price action for Bitcoin

Spot volumes and open interest collapse

According to Delphi Digital, declines in trading activity are one of the biggest factors affecting the market. This is because after the May 19 sell-off there was an exodus of spot and derivatives traders from exchanges.

*Spot exchange volume. Source:* *Delphi Digital*

As seen in the chart above, after seeing a substantial increase during the first half of 2021, exchange volumes have fallen by more than 60% as prices collapsed and traders swore off using leverage.

The precipitous drop in BTC price also helped to tamper down retail traders' use of high leverage in derivatives markets and proof of this comes from BTC futures open interest dropping back to levels seen since early 2021.

Delphi Digital said:

“This purge has caused significant damage to the bullish market structure, with futures basis near 0% and depressed funding rates for perpetual contracts.”

On a more positive note, the mega liquidation event seen back in May helped clear out overleveraged traders, meaning “stronger-handed participants are the ones primarily contributing to current open interest levels.”

Dollar strength leads to BTC weakness

Another factor weighing on the price of Bitcoin has been the recent strength of the U.S. dollar, which has been on an uptrend since bottoming at 89.53 on May 25.

*DXY 1-day chart. Source:* *TradingView*

As seen in the chart above, a large inverse head and shoulders pattern has formed on the DXY chart with the neckline now being tested for the third time.

Should the dollar make another leg higher, the current economic recovery could be threatened as financial conditions would tighten and this might weigh heavily on many of the most popular trades of 2021.

Delphi Digital said:

“Commodities, gold, emerging market equities, Bitcoin are all vulnerable to a strengthening greenback, though the speed of its move also remains a critical factor.”

Bitcoin price falls to a long term support

While the 51% drop in BTC price has many analysts afraid that another multi-year bear market could be starting, it’s important to account for some of the larger macro trends that led to the current conditions.

*Bitcoin month-over-month returns. Source:* *Delphi Digital*

The above chart shows that Bitcoin had six consecutive months of price gains before a downturn and the asset was due for a pullback from a historical perspective.

Even with BTC down 51% from its all-time high, on a year-over-year basis, its price is still 250% higher than its $9,100 valuation on July 16, 2020.

The long-term uptrend for Bitcoin remains intact with its price currently testing the 12-month moving average, an important level of support that will determine where the price heads from here.

*BTC/USD vs. 12-month moving average* *1-month chart. Source:* *Delphi Digital*

Bitcoin trading volume on spot and derivative exchanges is down and the prospects of a strengthening dollar weigh heavily on global financial markets. This has resulted in indecisiveness being the primary emotion that rules the crypto market at the moment and this sentiment is likely to persist until a major price movement or motivating event prompts engagement from sidelined traders.