Cryptocurrencies Remain Popular in the Bear Market
The 2022 cryptocurrency bear market was the worst in the history of observations, as most bitcoin traders are in the red and continue to sell at a loss.
Head of the BingX brandEmerson Lee said that in response to the rapid drop in token prices, some investors fled to safe haven assets, others completely left the market, and others turned to the mysterious crypto derivatives market with bewilderment.
"Derivative financial instruments provide an opportunity to protect their portfolios during periods of increased market volatility," says Emerson Lee, head of the BingX brand.
BingX is a Singapore-based cryptocurrency social exchange, known for its leaderboards, where some users can compete with others for a return on investment, as well as share ideas with their subscribers. Over the past 24 hours, the exchange has processed a trading volume of about $319 million, mainly consisting of derivatives. As for the recent downturn in the market, Lee claims that the exchange's user base is growing again.
"BingX users are also growing; compared to the first quarter of 2022, the number of users in the second quarter increased by 70%, and transaction volumes doubled after this round of declines. We believe that the demand for derivatives is still growing, as it allows users to profit when prices fall, a feature that other products do not have," said the head of BingX.
During a bear market, traders can buy derivatives, known as put options, to either hedge their positions or speculate that the value of the underlying tokens will fall. Although this can be done simply by selling a coin, strong and periodic bear market rallies can lead to theoretically endless losses on a short position. In addition, the lack of liquidity to borrow coins for short positions can lead to exchanges charging high interest rates on positions. On the other hand, the put buyer's losses are theoretically limited by the premium he paid for the derivative, and there are no additional interest charges.
Lee further explained that BingX has also seen a sharp increase in deposits recently.
"Since the high volatility of the market is suitable for the derivatives market, we see that more and more users participate in such transactions and stimulate greater demand for deposits," he said.
Money also seems to be coming back into CeFi products from DeFi protocols.
"Regarding high-risk products such as DeFi stacking, we believe traders panicked due to the recent market affected by the Terra (LUNA) case - later renamed Terra Classic (LUNC) - and problems with many DeFi protocols. Users' risk appetite has decreased and demand has decreased," Lee said.
Indeed, on dYdX, a decentralized crypto exchange known for its margin and perpetual contracts, weekly trading volume fell by about 90% compared to the $12.5 billion observed from October 24 to October 30 last year. However, trading volume is still several magnitudes higher than a year ago, partly due to the aforementioned tailwind for hedging risks.
From a risk perspective, it looks like the worst is over, as the surge in liquidations on dYdX, mainly in the Ethereum and Bitcoin markets, has stopped since mid-June. Experts from Glassnode noted that the tokens stored in the wallet addresses of both new investors and crypto-whales increased significantly against the background of the sale.
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