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Golden Observation | Understanding the Opportunities Behind Derivatives Data



On May 19, 2021, the price of BTC fell sharply. The highest price of the BTC perpetual contract on that day was $43,500, and the lowest was $28,500. Even for BTC, this is a big pullback.

It is very difficult, if not impossible, to predict the fundamental factors that cause the price of a currency to drop sharply. Amid the slump, China banned banks and payment companies from providing services related to cryptocurrency transactions. Tesla announced that it would no longer accept BTC payments due to the high power consumption of the BTC proof-of-work mechanism for mining, which made the original plunge in currency prices even worse.

Although it is almost impossible to know that the price of the currency will fall in advance, when understanding social structures such as the market, you can always detect some signs through collective intelligence.

In this sharp drop, BTC options and related derivatives data can indeed serve as a revelation. For example, on May 14, a trader purchased a large number of short-term $46,000 BTC put options by executing a block trade on Paradigm. Those options, which expired on May 21, represent a nearly 800% increase in open interest.

Jinse Finance mining data broadcast | BCH's network computing power rose by 2.97% today: Jinse Finance reported that according to the data of the spider mining pool:

The computing power of the BTC network is 102.659EH/s, the mining difficulty is 15.14T, the current block height is 632685, and the theoretical income is 0.00000908/T/day.

The computing power of the entire ETH network is 182.844TH/s, the mining difficulty is 2305.81T, the current block height is 10183494, and the theoretical income is 0.00830097/100MH/day.

The BSV network computing power is 1.999EH/s, the mining difficulty is 0.27T, the current block height is 637542, and the theoretical income is 0.00045026/T/day.

The computing power of the BCH network is 2.708EH/s, the mining difficulty is 0.39T, the current block height is 637760, and the theoretical income is 0.00033232/T/day. [2020/6/2]

To operate options, investors need to choose a very good time to trade, because the option expires very quickly.

On Monday, May 17, there were again some noteworthy signs in the derivatives market. First, despite BTC’s steeper drop on Monday, hitting a low of $42,000, the derivatives market reacted exceptionally strongly.

Golden Relativity | Ruan Yubo: STO is expected to reduce the cost of asset circulation: In this issue of Golden Relativity, Ruan Yubo, the founder of 8D Capital, expressed his views on the issue of "how the STO attack will affect the market". Ruan Yubo said that from the investment of various assets around the world In other words, at the end of the cycle, it is a profit opportunity when liquidity is scarce. Whether it is from the perspective of technology, population, nature, and institutional changes, or from the perspective of debt, real estate, and inventory cycles, 2018-19 is a period when risky assets are facing downward pressure and the main logic of investment turns to the pursuit of asset liquidity. . The surge in U.S. bond yields will be transmitted to the stock, bond, foreign exchange, commodity, and real estate markets through the pricing mechanism, causing a resonant decline in global risk assets.

From the perspective of blockchain and digital assets alone, we have experienced transfer payments led by 1.0 bitcoins, equity financing led by 2.0 ICOs, IPOs and ICOs are more equity financings, STOs are more about debts, and stocks and debts are mixed. Its advantages are, first, to reduce regulatory risks and strengthen due diligence. In the context of the United States, the application of regulatory offer exemptions (such as Reg D or Reg S) is the first step in compliance. By writing the regulations of each country for KYC and AML into smart contracts, it is actually expected to achieve automatic programmable compliance. The second is that global assets seek higher liquidity, rate of return or alpha. STO is expected to reduce the circulation cost of assets and obtain a potential liquidity premium. [2018/10/12]

Deribit option liquidation volume is the highest in the month. It is worth noting that investors sold a large number of bullish options, resulting in a sharp increase in bullish implied volatility.

Golden Finance live report on the founder of Distributed Lab: the current marketing method of cryptocurrencies is very dangerous: Golden Finance live report, today at the Coindesk 2018 Consensus Conference, Pavel Kravchenko, the founder of Distributed Lab, said that the blockchain cannot verify any data and does not allow real-time Transactional, immutable, non-encrypted, and cannot replace servers. At the same time, he also gave five use cases of blockchain, namely voting, public registration, supply chain, decentralized transactions and reconciliation. Pavel believes that the current marketing method of cryptocurrencies is very dangerous, and the promotion method of "you must buy Bitcoin now before other people get rich" is the wrong way. [2018/5/15]

Parallel rises in implied volatility curves are very rare. Because implied volatility reflects the average volatility over the life of the option. Implied volatility rose sharply on May 16-17, reflecting a large change in volatility expectations over the next 300 days. This almost never comes up.

Jinse Finance's exclusive analysis, such as the launch of the central bank's digital currency, considers factors that are far from limited to technology: Today's "Economic Daily" published an analysis and looked forward to the possibility of the central bank's digital currency, which pointed out technical factors and revealed the transformation of digital currency to the entire financial system. Digital currency will fundamentally change the process of currency production, transmission, and transaction. It will be a major reform for the payment system. While reducing costs, it will require a new system for possible management and control. Jinse Finance believes that this is the current Key issues in the implementation of the central bank's digital currency. According to Jinse Finance’s analysis, various countries have also frequently voiced their views on digital currency. Japan has expressed no plans to issue central bank digital currency due to its possible impact on the existing financial system, and South Korea has no plans to issue central bank digital currency due to possible conflicts with the legal system; Concerns about the impact on the financial system remain cautious. But at the same time, we also see countries like Thailand that support the issuance of central bank digital currency. R3 also said that some form of cryptocurrency may be launched, and relevant dialogues with central banks of various countries are also ongoing. Generally speaking, relevant organizations and institutions not only It should focus on solving technical problems, and should provide practical suggestions for supporting policies. [2018/4/20]

Futures spreads are another derivative that has gained huge traction. As the futures cash spread trade continues to grow, professional traders have been using Paradigm to place large trades using options on futures spreads and synthetic futures spreads.

Golden Finance News: VNBIG, the first digital currency trading platform in Vietnam, has started trading online, supporting ETH, BTC and other currencies, and will also launch high-quality digital currency assets such as VEN in the future. [2017/10/24]

Orca trader Julien Sterz noted an interesting divergence in Deribit futures prices versus those on other exchanges like Binance and FTX.

This discrepancy exists at Deribit because the platform is the largest crypto options exchange in the world, and as cryptocurrency prices fall, traders have negative gamma.

Simply put, in this case, traders sell futures when the market is falling, to hedge the options book, although Deribit futures volume is lower than other trading venues, traders must hedge the options book, they have to do it because the market Big moves are about to happen, and traders won't stop hedging despite price differences.

Investors who are unwilling to maintain negative gamma positions may choose to buy back options and close their positions, pushing up implied volatility. It is no coincidence that the Deribit DVol index hit a record high on May 17, with a 30-day implied volatility approaching 160.

According to the above signs, some investors can feel that the market will undergo a major adjustment. On May 19, the price of BTC fell sharply, from $43,000 to $28,500, a drop of nearly 35%.

This is a very large level of correction, because the market value of BTC has reached 1 trillion US dollars. But at least for assets with large market capitalizations, such volatility does not occur very often. Many traders were totally unprepared for a massive liquidation that day, and some of the market reaction was very noteworthy.

The graph above is the data provided by the option analysis tool, which shows that the volatility of long-term options on May 19 and May 17 is almost the same.

The price of BTC fell sharply by 35%, but this had little effect on long-term volatility, only on short-term option prices.

This means that long-dated options volatility was already absorbed by the market two days before the May 19 crash.

Is it possible to predict future movements? Of course not. Basically, it is impossible for investors to predict the market accurately all the time. However, there are some hidden signals in the market. By observing these signals, we can judge market sentiment, and there will also be some market trends, which can sometimes provide asymmetric opportunities.

For example, Deribit noticed that BTC’s short-term options volatility skew would remain negative, despite the highly correlated asset Ethereum hitting new all-time highs with a positively skewed price distribution.

No matter what happens in the cryptocurrency market, options traders are in huge demand to buy Bitcoin put options.

Bitcoin Skew Status on May 2

Ethereum Skew State on May 2

Another notable divergence is the implied volatility term structure for BTC and Ethereum on May 10, 2021.

This divergence makes sense if the price continues to rise, as ETH hits a new all-time high while BTC stagnates, but can BTC really fall at such a high rate in a sell-off? If so, traders could trade in relative volatility by selling Ethereum puts to fund buying BTC puts.

Market moves of this type can provide asymmetric opportunities.

All of this data only represents past opportunities, and we should discover future opportunities.

It is well worth watching BTC versus Ethereum for investors, as option premiums for both assets have been growing year-to-date.

YTD BTC option premium

YTD Ethereum Options Premium

Can we judge the overall market sentiment of BTC and Ethereum by observing the growth rate of derivatives? The answer will be revealed soon.

The content-zce of this article comes from Deribit


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