Tag: Bitcoin

Founded in 2015, Deribit is a cryptocurrency derivatives exchange which offers perpetual swaps, futures contracts, and most notably cryptocurrency options. Today it has announced a record day in terms of options trading volume.

On the 27th of July Deribit announced that it had traded over 50000 Bitcoin options contracts with a dollar value exceeding $527 million. What is also noteworthy is that open interest (the amount of outstanding contracts) also reached a new all time high with a notational value of $1.5 billion.

Deribit – BTC Options Volume

Not only did Bitcoin options trading break records but so did Ethereum trading. With a new open interest record of 885,000 contracts equivalent to $281 million.

These new records in trading volume come off the back of an increase in market volatility as it appears that the stagnant market volatility that characterized the market in previous month has dissipated as both Ethereum and Bitcoin push towards new local highs.

This new options record can give us insight into two things: Deribits dominance of the options market, and the continuing demand for more advanced cryptocurrency derivatives like those found on Deribit.

When we look at the share of total options trading volume we can see that Deribit is miles ahead of the competition.

Bitcoin Options Volume Among top Exchanges

As you can see from the chart above Deribit made up more than 88% of the trading volume. Beating out every other exchange significantly. Including traditional financial giants such as CME.

This new trading record also shows the increase in demand for more complex trading instruments. Your trading product does not do over $527 million in volume by accident it shows true demand. And it seems at the moment that Deribit is the platform to meet said demand.

As we experience some of the greatest financial turmoil of the last 50 years the global financial system seems to be one tremor away from complete collapse. The largest jump in US unemployment in history, GDP is tanking, the federal reserve is printing funny money, and we are seeing some of the largest fiscal packages ever.

Certain subsets of people are beginning to recognize the fragility of the system and are looking for hedges against it. A Bitcoin holder will obviously tell you to buy Bitcoin. While a Gold holder will tell you to buy Gold and then silently suggest you bury the bars in the garden.

But where are people looking in actuality? By looking at Google Trends data we can get some insight.

Over the past 12 months search trends for both ‘Buy Gold’ and ‘Buy Bitcoin’ have remained relatively stable. That is up until the latest financial calamity unfolded. Pictured in red is ‘Buy Gold’. Pictured in blue is ‘Buy Bitcoin’.

When we look over the past 30 days we get a more accurate perception of what is going on in the minds of the masses.

At the start of the month both remained relatively stable. While as Coronavirus gradually infected the financial system both rose. Bitcoin spiked hugely on the 13th of March. Doubling in a day. The 13th of March you may remember as the day Bitcoin fell over 50% in value. It seems that large number of people were interesting in scooping up cheap Bitcoin. Briefly overtaking search interest in Gold.

However as prices Bitcoin prices stabilized while the S&P500 continued to crumble Gold took the reigns and has continued to increase in interest since while Bitcoin interest fell.

Month on month search interest in Bitcoin has increased by 27% while interest in Gold has increased by 50% and current search interests put its 127% higher than Bitcoin.

But what does this tell us? Both assets are being seen as hedges against the system. (Although the Bitcoin price chart does not give that impression) However Gold still remains better at permeating into the mind as the better hedge against the status quo.

To end the article on a more dull note for both gold and Bitcoin fanatics. ‘Buy Stocks’ (Pictured in yellow) still remains the top dog by far.

Bitcoin has had its most poorly performing week since 2018. At the time of writing it has fallen just over 2000$ since the weekly candle opened. However, price only tells us half the story.

People have been quick to put blame for price movements on the launch of the much anticipated Bakkt futures market, or potential drops in hashrate. But now courtesy of the TokenAnalyst we can get valuable data on how large players in the market are moving capital, and in doing so gain insight into their motivations.

When taking a look at the data we will primarily be focusing on both Binance and BitMEX as these were the two exchanges where the most activity took place.

BitMEX

When taking a look at the data for BitMEX we see the large dip in price on the price chart (Top graph) which took us from 9500 to 8500 in one hour. In the following 3 hours after this fall in price on the net in/out flow chart (Bottom Graph) we see just under 8000 Bitcoin deposited.

Binance

When we inspect the data for Binance we see strong similarities. A dump followed by large amounts of deposits in the proceeding hours. Not quite as much Bitcoin was deposited to Binance as Bitmex. Deposits coming in at 5765 Bitcoin. Nonetheless a very significant amount of Bitcoin.

However, it is important to note that unlike BitMEX, Binance does not purely handle Bitcoin transactions but a multitude of currencies. An important one to Bitcoin is the stable coin Tether. Based on the chart above we can see a huge net outflow of Tether to the value of 35 Million Dollars. This contrasts heavily with the net inflow of Bitcoin to exchanges. We looked further into Tether withdrawal data and we saw similar trends across a number of exchanges. But now we have a dilemma, where is the Tether being sent? That question is currently unclear but whichever market players are harvesting these Tethers they have not deposited them on any other exchange except one. Poloniex, where 10 million were deposited. To put that in perspective Poloniex only does 10 million dollars in total volume a day.

Conclusion

To answer the question we gave at the start of the article. What is the motivation behind these large flows of capital? It is truly hard to know the full story, but one possible suggestion are large quantitative firms who engage in arbitrage where as they make money in price differences across exchanges. Read our article on Alameda Research to get more of an insight into how quantitative trading in crypto works. Another is miners in China whose energy costs have risen selling their Bitcoin for Tether. Nonetheless it is very interesting to see how blockchain is giving us a perspective into how financial markets work beyond just movements of price.