The coronavirus has prompted epic reorganizations in each nook of the international financial system. This can be true in the cryptocurrency futures market.
The Most Diverse Audience to Date at FMLS 2020 – Where Finance Meets Innovation
In truth, immediately, the Bitcoin derivatives house seems fairly totally different than it did a number of months in the past; the sorts of contracts which are being traded mostly are shifting, in addition to the platforms which are being mostly used to commerce them.
Much of those modifications could be attributed to the financial fallout and BTC worth volatility attributable to the outbreak of the coronavirus. However, the Bitcoin futures market has additionally been affected by the Bitcoin halving occasion that occurred earlier this month.
Now that the world is three months into the post-corona period, and the Bitcoin house is 2 weeks previous its most up-to-date halving, how precisely has the Bitcoin derivatives panorama shifted? Has the development that has occurred on some exchanges–for instance, Binance Futures, Huobi Futures, and OKEx–been at the expense of different exchanges, reminiscent of BitMEX? And how has worth volatility affected the crypto derivatives house extra typically?
Price volatility has been a optimistic factor for crypto derivatives
Ciara Sun, Head of Global Markets at Global Huobi Group, advised Finance Magnates that at a fundamental stage, the worth volatility that has been led to by the coronavirus, in addition to the Bitcoin halving, has been good for the cryptocurrency derivatives house.
Indeed, “the current economic fallout is driving volatility in both traditional and crypto markets, creating a favorable environment for crypto derivative products to thrive,” Sun stated.
“Volatility is a very natural part of market cycles and derivative products like futures contracts and perpetual swaps allow traders to leverage this volatility to create arbitrage opportunities,” she continued.
“Moreover, the current economic climate has revealed digital assets as viable alternatives to traditional currencies as governments and central banks print record sums of new fiat currencies to starve off recession. As such, we’ll see more crypto derivative trading activity through 2020 and beyond, particularly in the institutional sector.”
“We’re already seeing a surge in derivatives trading volume.”
On quite a few cryptocurrency derivatives exchanges, this surge in exercise has already begun to materialize: for Huobi Futures, Ciara Sun stated that “we’re already seeing a surge in derivatives trading volume.”
“In the first quarter of 2020, derivatives trading volume on Huobi Futures reached $438 billion, accounting for 22% of the total market trading volume. And on May 12th, the 24-hour coin-margined perpetual swap trading volume on Huobi Futures reached $5.47 billion.”
CME additionally noticed an enormous surge in open curiosity ranges for its Bitcoin futures contracts, with a brand new all-time excessive of slightly below $500 million on Friday, May eighth. At the time, CoinDesk reported that “CME’s bitcoin futures market has grown faster than nearly every other bitcoin futures market on a percentage and real growth basis.”
There had been additionally surges on a number of different Bitcoin futures buying and selling platforms, together with Binance Futures. In an interview with Finance Magnates, Binance Futures VP Aaron Gong stated that his change made it to the high of the quantity charts “shortly after 12th March–’Black Thursday’.”
Although it has since traded locations with a number of different exchanges competing for the high spot since then, “we’re seeing steady growth–the momentum is strong, and still there.”
More institutional curiosity appears to have materialized on BitMEX, however a part of the exercise additionally appears to have been a reorganization of customers throughout exchanges
What has prompted this surge of exercise?
For one factor, it appears that evidently the elevated volatility in the worth of Bitcoin after the coronavirus–in addition to the consideration and press that Bitcoin bought round the halving occasion earlier this month–appears to have attracted fairly a little bit of institutional consideration to the Bitcoin futures house.
For instance, CoinDesk reported earlier this month that “prominent American hedge funds are interested in investing in bitcoin futures.” Specifically, information broke in April that Renaissance Technology’s flagship Medallion fund was contemplating buying and selling bitcoin futures on CME; moreover, in May, Paul Tudor Jones II of the Tudor Investment Corp., advised traders he was curious about investing in bitcoin futures.
However, a few of the development on some futures exchanges could also be occurring at the expense of others: particularly, there appears to have been a migration from former BitMEX customers to different futures exchanges.
This shift appears to have begun on and instantly after March 12th, also referred to as crypto’s ‘Black Thursday’, when the worth of Bitcoin–and the cryptocurrency markets extra typically–all of a sudden shed billions. Within a 24-hour interval, the worth of Bitcoin dove from roughly $7,600 to roughly $4,700; as Bitcoin’s worth was dropping, BitMEX skilled a sudden service outage in the early hours of March 13th.
According to CoinMetrics, Bitcoin’s worth drop was successfully stopped by the outage as a kind of ‘de facto’ circuit breaker; initially, the outage was thought to have been an infrastructural failure. However, it was later revealed that the outage was the results of a DDoS (distributed denial of service) assault in opposition to BitMEX.
Indeed, “on March 13th, during the second downward price movement at 2:16AM UTC, trading on BitMEX slowed to a crawl as the exchange faced what was first thought to be a hardware issue, but was later determined to be an intentional DDOS attack,” CoinMetrics’ autopsy of the assault reads. “This made it nearly impossible to trade on BitMEX.”
A reorganization of customers on derivatives exchanges has introduced Binance, Huobi, and OKEx futures’ exchanges to the high–maybe at BitMEX’ expense
Still, regardless of the undeniable fact that the outage was not a failure of BitMEX’s infrastructure, the occasion appears to have certainly been the main reason behind a migration away from the change.
Users appear to have moved away from BitMex and onto different cryptocurrency derivatives exchanges–primarily, Binance Futures, Huobi Futures, and OKEx; the three have traded locations as the high futures change by quantity ever since; open curiosity on BitMEX has slowly been on a pattern in direction of restoration.
Covid-19 Fallout: A Unique Opportunity for the FX Market!Go to article >>
Reports that BitMEX might have been shedding its market share to different futures exchanges first emerged in the weeks following Black Thursday and the DDoS assault on the following day; CoinTelegraph reported in Mid-April that BitMEX was “bleeding Bitcoins”: that on “March 13, BitMex held 306,814 Bitcoins (BTC), by April 9, this number had dropped to 222,025 — this represents a 38% decrease in Bitcoin holdings.”
According to information from The Block, the pattern continued by means of the finish of the month:
Huobi’s Ciara Sun advised Finance Magnates that this sort of post-outage reorganization is par for the course: “generally, major exchange outages are usually followed by a redistribution of crypto derivatives traders,” she stated, “though the impact a single outage has on an exchange is not easily quantifiable because it also depends on how frequent the outages are.”
“Traders may overlook one or two outages during especially abnormal trading environments but they’re much more likely to leave if it becomes a regular occurrence,” she stated.
“Anecdotally speaking, we do see an uptick in users when there’s a major outage at other crypto derivative exchanges but it’s not just about the immediate user reaction. Outages impact an exchange’s brand equity and trust in the long run, so they slowly erode customer confidence.”
Therefore, it’s attainable that the singular DDoS outage on BitMEX that occurred on March 13th will not be the solely motive that customers appear to have been exiting the change; based on the BitMEX weblog, the BitMEX buying and selling engine skilled unscheduled downtime between 12:00 UTC and 13:40 UTC on May 19th because of an sudden server restart.
The change has additionally confronted a number of different public hiccups over the final a number of months. In early November, BitMEX by chance revealed 1000’s of BitMEX customers’ e mail addresses had been revealed in a mass announcement that was despatched to each consumer on the change.
Additionally, earlier this month, BitMEX was accused in a United States District Court for the Northern District of California of being “deliberately designed, from the ground up” to facilitate “a myriad of illegal activities.” The allegations had been made in a serious new lawsuit filed by BMA, LLC; the case is ongoing.
BitMEX is aiming for restoration
Christian Arrita, product lead at StakerDAO, a Polychain-backed platform for launching and managing decentralized monetary belongings, advised Finance Magnates that BitMEX’s outage was probably a signifcant a part of the motive for the surge on Huobi’s platform–in addition to OKEx and Binance.
“Yes – it’s likely that outages have redistributed volumes to other exchanges with better infrastructure,” he stated. “If we look at a metric like futures volume, we see that exchanges like Binance and Huobi were earlier to recover and increase volumes after the sharp correction in Bitcoin in early March.”
“Binance and Huobi have also seen open interest recover at an accelerated pace compared to BitMEX. Binance has even surpassed the open interest seen prior to the run up in Q1 2020.”
In response to the reviews that BitMEX could also be shedding customers to different derivatives exchanges, a spokesperson from BitMEX advised Finance Magnates that “both traditional and cryptocurrency markets have experienced extreme volatility in 2020 as traders navigate their way through the fallout and uncertainty of COVID-19.”
“However, we’re inspired to see BitMEX open curiosity choose up and spreads tighten to pre-pandemic ranges.
BitMEX: “We are usually not complacent”
Additionally, the spokesperson stated that “BitMEX remains the most liquid cryptocurrency derivatives exchange in the market, which underlines the confidence traders have in our platform and the enduring appeal of our innovative products.”
“We are not complacent, though, and continue to focus on developing new products for our users, whilst further building out the resiliency of our platform,” the spokesperson continued, including that “we’ve been pleased with the market reaction to our new ETH/USD quanto futures contract launched in early May, and we will be announcing further product launches imminently.”
“Our teams are continuously enhancing BitMEX platform infrastructure so that we can continue to provide a best-in-class trading experience for our users as we target near-zero downtime. More details about the unscheduled downtime on 19 May and how we are addressing it can be found in our postmortem report on the BitMEX blog.”
An industry-wide shift towards higher instruments for threat administration
Other futures exchanges have additionally made strikes towards bettering their infrastructure, significantly after the market volatility that got here because of the coronavirus fallout.
Huobi’s Ciara Sun advised Finance Magnates that “we’ve also seen industry-wide demand for better risk controls in crypto derivatives markets to help traders mitigate volatility risk.”
“When the crypto market plummeted in March, many traders on major crypto derivatives exchanges saw their positions suddenly liquidated, causing massive losses and a further drop in prices. But in an effort to protect user assets, Huobi Futures rolled out a new partial liquidation mechanism and a liquidation circuit breaker to prevent unnecessary losses in times of extreme volatility.”
What are your ideas on the modifications in the Bitcoin futures and crypto derivatives markets after coronavirus and the Bitcoin halving? Let us know in the feedback beneath.