The 2022 cryptocurrency bear market has been the worst in history, with most Bitcoin investors in the red and still selling at a loss. In response to rapidly falling token prices, some investors have fled to haven assets; others have sold their holdings outright and others have perplexedly turned to the enigmatic crypto derivatives market.
With that in mind, Cointelegraph sat down with BingX head of brand Emerson Li. BingX is a social media-based cryptocurrency exchange from Singapore, known for its leaderboards, where users can compete with others on the performance of their investments and share ideas among their followers. The platform moved around $319 million in trading volume in the last 24 hours, mainly on the side of derivatives. Regarding the recent market downturn, Li shared the following:
“BingX users are also proliferating, compared to the first quarter of 2022, the number of users increased by 70% in the second quarter, and the volume of transactions has doubled since this series of falls. We believe that their demand for derivatives continues to rise because it allows users to benefit from falling prices, a feature other products don’t have.”
In bear markets, traders can buy derivatives known as put options to hedge their positions or speculate on the falling value of the underlying tokens. Although this can be done by simply shorting the currency, the periodic bear market rallies can lead to theoretically infinite losses on a short position. Additionally, a lack of liquidity to borrow coins to short can cause exchanges to charge high funding fees for positions. On the other hand, the put option buyer’s losses are theoretically limited to the premium he paid to open the contract, and there are no additional financing fees.
Li went on to explain that BingX is also seeing a strong increase in deposits of late. “Since the high volatility of the market is suitable for the derivatives market, we see that there are more users participating in these types of operations and stimulating a greater demand for deposits.”
It also appears that money is flowing out of DeFi protocols into more mainstream products. “In the case of high-risk products such as DeFi staking, we believe traders have panicked in the recent market, affected by the Terra (LUNA) affair – which has since been renamed Terra Classic (LUNC) – and the problems of many DeFi protocols. Users’ risk appetite has decreased, and demand has decreased,” Li said.
In fact, dYdX, a decentralized exchange known for its margin products and perpetual contracts, saw its weekly trading volume drop roughly 90% from $12.5 billion recorded between October 24 and 30 last year. However, trading volume is still several times higher than a year ago, in part due to the aforementioned tailwind of risk hedging.
As for the risk, it seems that the worst is over, as the peak of liquidations in dYdX, mainly in the Ethereum and Bitcoin markets, has dissipated since mid-June. Glassnode experts have noted that tokens held in wallet addresses, both from new investors and whales, have increased significantly amid the sell-off.
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