With the bear market in full swing, crypto derivatives retain their popularity

The 2022 cryptocurrency bear market has been the worst recorded as most Bitcoin traders are under water and continue to sell at a loss. In response to the rapid decline in token prices, some investors have fled to salvage port assets; some have left the market completely, while others have confusingly turned to the enigmatic market for crypto derivatives.

In this regard, Cointelegraph spoke with BingX brand manager Emerson Li. BingX is a Singaporean social-based cryptocurrency exchange known for its leaderboards where users can compete with others for return on investment, as well as share ideas among their followers. The exchange traded around $ 319 million in trading volume over the past 24 hours, mainly consisting of derivatives. Regarding the recent market downturn, here’s what Li had to say:

BingX users are also spreading; compared to the first quarter of 2022, the number of users increased by 70% in the second quarter, and transaction volumes doubled since this round of downturns. We believe that the demand for derivatives continues to increase because it allows users to profit from falling prices, a feature that other products do not have.

Under bear markets, traders can buy derivatives known as put options to either hedge their positions or speculate that the value of underlying tokens will fall. Although this can be done by simply shorting the coin, violent and periodic rallies in the bear market can lead to theoretically endless losses on one’s short position. In addition, a lack of liquidity to lend coins for short periods can lead to stock exchanges charging high interest rates on one’s positions. On the other hand, the put buyer’s losses are theoretically limited to the premium they paid for the derivative, and there are no additional interest charges.

Li went on to explain that BingX has also seen a sharp increase in deposits recently. “Since high market volatility is suitable for the derivatives market, we see more users participating in such transactions and stimulating more demand for deposits.”

Money also seems to be flowing back to CeFi products from DeFi protocols. “For high-risk products such as DeFi staking, we believe traders have panicked during the recent market, affected by the Terra Luna case and the problems with many DeFi protocols. Users’ risk appetite has declined and demand has fallen,” Li said.

In fact, dYdX, a decentralized cryptocurrency exchange known for its margin and perpetual contract products, saw its weekly trading volume fall by about 90% from $ 12.5 billion seen from October 24 to October 30 last year. However, the turnover volume is still several sizes higher than a year ago, partly due to the aforementioned risk hedging tailwind.

In terms of risk, it seems that the worst is over as an increase in liquidations on dYdX, mainly in the Ethereum and Bitcoin markets, has disappeared since mid-June. Experts from Glassnode noted that tokens held in the wallet addresses of both new investors and cryptocurrencies had increased meaningfully in the middle of sales.