Cryptocurrency Derivatives Series: Spotlight on ‘Bitcoin Derivatives Markets’ in response to underlying price action and global market uncertainty

A quick glance at the underlying price movement: Bitcoin (BTCUSD) bounced back from the lows of $3,122 levels to the current $10,918 mark a coin against the dollar. Year-2019 has been luring crypto-aspirants (a mammoth over 120% jump, however, prior to such a massive rally, 2018 has been disappointing, the pioneer cryptocurrency has slumped considerably below $4,000 areas. 

As per few analysts’ reports, skepticism is still lingering, as bitcoin has still not proven itself to be a viable safe haven for investor assets.

What’s cooking in BTC derivatives market?

On the back of the underlying price developments, the recent price volatility and the sudden spike in price are likely to have been prompted by short squeeze activities in the Bitcoin Futures markets. This is majorly due to shorts are forced to square-off their positions (incurring a loss) as the underlying price increase. 

These traders are forced to cover these positions quickly before the price goes even higher. If enough shorters are caught in this position, then the subsequent squeeze can have a tangible effect on price. As per reports from BNC, currently, Bitmex derivative traders are at around 48% long and 52% short trading Bitcoin.

Another factor in the ongoing bullish price run may be increasing demand for Bitcoin as a hedge against macroeconomic uncertainty.

The HFs note to investors points out that back in 2017, cryptocurrency markets and trading platforms have come up with better liquidity and stability, as additional products have been added in an attempt to tame the volatility of Bitcoin.

Volatility is the heart and soul of options trading. With the proper understanding of volatility and how it affects your options, you can profit in any market condition. The markets and individual asset class are always adjusting from periods of low volatility to high volatility, so we need to understand how to time our option strategies. After various skeptic perceptions, a question strikes shrewd investors’ mind. 

Is the cryptocurrency in reality immune to inflation?

It’s a feature of the low-inflation era that very few governments or central bankers want a strong currency. That’s just one reason why Bitcoin is doing so well. Strong currencies depress inflation, at least temporarily, and if their impact on competitiveness is exaggerated, it’s still enough to make them take the blame for jobs being lost to other cheaper-currency producers. 

Can it beat hyper-inflation driven by confidence crisis?

Well, we have already emphasized this aspect in one of our historic write-ups. We reiterate that any currency system looks to be worthy and credible only when the willingness to accept it as a medium of exchange. How much would a bitcoin be worth is exactly how much goods would people accept to trade for one unit of bitcoin. Just in case, in the real market sentiment begins that bitcoins are worthless, its purchasing power likely to weaken, consequently the inflationary issues crop up. Courtesy: TradingView & BNC

Currency Strength Index: FxWirePro's hourly BTC spot index is inching towards 91 levels (which is bullish), while hourly USD spot index was at -62 (bearish) while articulating (at 11:06 GMT).

For more details on the index, please refer below weblink:

By Niranjan Patil
  • Market Data

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