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Bitcoin no longer dependent on derivatives trading

Biraajmaan Tamuly

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Source: Pixabay

The digital asset industry entered the final month of Q2 2020 after bidding farewell to what was a very critical month for Bitcoin, the world’s largest cryptocurrency. Bitcoin completed its 3rd halving in May and while many expected it to surge, its bullish momentum subsided a couple of weeks after the event.

All wasn’t lost, however. While many expected a steady period of correction after the halving, Bitcoin managed to hold its own on the charts as the crypto-asset continued to maintain itself above $9000 for a majority of the time.

The positive nature of Bitcoin was also underlined by Deribit‘s latest institutional newsletter.

Source: Deribit

According to the newsletter shared with AMBCrypto, the exchange set a new Bitcoin Options volume record of 10.7k contracts and registered a significant increase in terms of Ethereum interest as well, with the upcoming ETH 2.0 launch appearing to garner increasing investors’ attention with every passing day.

Source: Deribit

Reports of an all-time high Open Interest also fueled community sentiments as the exchange noted a total of USD 1.4 billion in BTC Options. Additionally, the total turnover in terms of USD was above 13.7 billion in May 2020.

However, the most crucial fact about these figures is the astonishing turnaround since April 2020.

In the past, sentiment in the derivatives market has always improved or declined steadily, but the difference between April and May has been night and day.

April 2020 resulted in a 47 percent slump from the previous month and it noted the second-lowest monthly returns for the exchange since April 2019.

However, in May 2020, the total turnover hiked by 61 percent, with the month of May registering the third-highest USD turnover since August 2019. With over 332,000 BTC options contracts and over 1 million ETH options (132% from April), the derivatives market played its part in May 2020.

Importance of derivatives over spot trading 

Now, it can be suggested that the lucrative turnaround in derivatives could be due to the price hike of BTC and ETH, but the wind flows both ways. It is highly likely that the positive rally in Bitcoin’s valuation might have been due to the fact that investors kept their faith in the market.

Institutional investors started swarming the industry as the likes of CME recorded high OI as well, but the most important factor to note here is that the emphasis was quickly moving away from dependence on spot trading volume.

In the past, consistent spot trading would be counted as an important metric to identify trend reversals or price rallies. However, the growing popularity of derivatives is changing the playing field at a breakneck pace.

The advantage of leverage trading that can be used to make large transactions with a small amount of capital, while being able to forecast future market risk and speculate on price volatility, is becoming a hugely popular option in the derivatives market.

Accredited investors are starting to recognize its potential and now, it is largely becoming a common trading place. Hence, it can be speculated that Bitcoins’ price and its Futures and Options contracts are becoming more co-dependent in the industry.


Biraajmaan is a full-time journalist at AMBCrypto covering the US market. A graduate in Automobile engineering, he writes mainly about regulations and its impact with a focus on technological advancements in the crypto space.