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Technology Bitcoin Speculators Gain Upper Hand as Derivative Trading Surges

21:00  22 october  2019
21:00  22 october  2019 Source:   bloomberg.com

Bitcoin Bullied Into Tighter Trading Range With Top at $11,800

Bitcoin Bullied Into Tighter Trading Range With Top at $11,800 Bitcoin’s trading range is narrowing as speculators seek positions on the right side of a potential break-out. Optimists are crowding into trades when it’s crossing above $10,000, while pessimists are looking to exit when it approaches $12,000, according to an analysis of Bitstamp’s volume-weighted prices over the past month. “It’s irrational how fixated people become around psychological levels,” Craig Erlam, senior market analyst at Oanda Corp. in London, said in an interview.

(Bloomberg) -- As Bitcoin becomes boring for many in the get-rich-quick crowd with volatility ebbing, trading in derivatives of the largest cryptocurrency is exploding.

At $5 billion to $10 billion a day, the amount of derivatives traded globally exceeds Bitcoin spot volume by 10 to 18 times, according to estimates from data trackers Skew and BitcoinTradeVolume.com. The volumes were about equal at the start of the year, through definitive figures for both are hard to come by from exchanges.

Crypto Crash Prompts Guessing Game as Bitcoin Breaches $10,000 Again

Crypto Crash Prompts Guessing Game as Bitcoin Breaches $10,000 Again Cryptocurrencies plunged suddenly in afternoon trading on Wednesday, spurring a guessing game of potential catalyst among enthusiasts and investors. The price of Bitcoin dropped below $10,000 for the first time since July. The largest digital token fell as much as 5.6%, before trading at $9,686 as of 3:40 p.m. in New York. Peer coins also sold off, with Bitcoin Cash falling close to 4% and Litecoin dropping about 8%. © Bloomberg Bitcoin dropped as much as 5.

Leading the charge are Asian-based exchanges such as BitMex and Binance that offer futures contracts for Bitcoin and smaller coins that can be leveraged more than 100 times and often perpetually. That’s especially attractive to traders still stung by Bitcoin’s almost 60% decline since late 2017 and hampered by the often thin liquidity that is a consequence of the buy-and-hold Bitcoin “whales” who controled more than a third of the decade-old digital asset.

“That’s where the money is to be made in crypto,” said Sid Shekhar, co-founder of London-based tracker TokenAnalyst. “It’s the biggest casino ever.”

a screenshot of a cell phone: Bitcoin Futures 24-Hour Volume by Exchange© Bloomberg Bitcoin Futures 24-Hour Volume by Exchange

And the number of players is rising as more exchanges seek to get customers to trade more. On Oct. 18, Boston-based Circle Internet Financial Ltd. spun off the Poloniex exchange it bought 18 months earlier as an Asia-based independent company partly so it would be free to offer derivatives.

Bitcoin’s Narrowing Trading Range Seen Suggesting a Push Higher

Bitcoin’s Narrowing Trading Range Seen Suggesting a Push Higher Bitcoin’s push above $10,000 this week has technical measures used by some analysts flashing positive signals. The largest digital asset is trading in a narrow range between its 50- and 100-day moving averages, with the former acting as a ceiling. A break above that key level, around $10,714, could suggest more gains ahead. © Bloomberg Key technicals levels signal bullish trend Cryptocurrencies dropped last week on no apparent catalyst, prompting a guessing game among investors and speculators over what caused the sudden sell-off. On Aug.

“To offer this in the U.S. is very cumbersome, it’s very, very heavily regulated, it’s also limited to Bitcoin,” Circle Chief Executive Officer Jeremy Allaire said. “The most popular products that people trade, you can’t even offer them in the U.S.”

On the OKex exchange, twice as many people have been trading derivatives than actual coins this year, according to Andy Cheung, the exchange’s head of operations in Hong Kong.

Binance, the world’s largest crypto spot exchange, launched its futures about a month ago -- and has already registered more than 34,000 customers for derivatives trading and is handling about $500 million in futures a day. On Oct. 18, Binance, which is run from Hong Kong, began offering leverage of as much as 125 times the value of the contracts.

“When trading with leverage, traders don’t have to tie up as much capital as you would trading spot,” said Zhao Changpeng, CEO of Binance. “This makes trading futures cheaper. This is the reason why futures trading in traditional markets is higher than spot trading.”

Digital Gold Mantra Revived After Bitcoin Tops Technical Hurdle

Digital Gold Mantra Revived After Bitcoin Tops Technical Hurdle Bitcoin extended its recent rally above $10,000 on Friday, crossing over a key technical level that could mean further gains ahead. The largest digital token climbed above its 50-day moving average, an indicator used to analyze trends and potential inflection points. Though it has been trading in a narrow range between its 50- and 100-day moving averages for weeks, some analysts see the former acting as a ceiling. A decisive break above could be a bullish signal.

But in traditional markets, derivatives are used for things like hedging commercial transactions. Those aren’t yet common in crypto.

“The main use case around this product so far has been around speculation,” said Emmanuel Goh, chief executive of Skew and a former derivatives trader at JPMorgan Chase & Co.

The cryptocurrency's volatility has plunged© Bloomberg The cryptocurrency's volatility has plunged

Traders have been looking for new ways to profit as Bitcoin’s volatility has fallen to less than 2% a day lately, according to exchange BitMex. Also driving growth, Binance, for instance, now allows traders -- many of them from Asia -- to buy futures tied to Tether, a so-called stablecoin that people in China can purchase with cash to avoid government capital controls.

Less turbo-charged products haven’t been greeted with as much enthusiasm. Cboe Global Markets Inc. stopped offering Bitcoin futures earlier this year after becoming the first U.S. regulated exchange to do so. Demand has also been tepid so far for the physically delivered contracts offered recently by Bakkt, a consortium led by Intercontinental Exchange Inc.

Ver’s Bitcoin.com Seeks to Launch Derivative for Bitcoin Cash

Ver’s Bitcoin.com Seeks to Launch Derivative for Bitcoin Cash Bitcoin.com, the firm backed by crypto evangelist Roger Ver, is working on multiple ideas to ramp up interest in Bitcoin spinoff Bitcoin Cash, including a futures contract. The goal is for Bitcoin Cash to become one of the largest cryptocurrencies in the world behind Bitcoin, according to the new head of its recently launched exchange unit, David Shin, who was most recently Asia head of global equity derivative sales at TD Securities. “Within a year I want to make that the second- or third-largest market cap,” Shin said. “To get from No. 4 to No. 3 or No. 2, we have to see more volume.

Crypto futures kicked into high gear in 2018, when BitMex, which is being investigated by the U.S. Commodity Futures Trading Commission, pioneered perpetual Bitcoin futures, which were easier for individual investors to understand than other derivatives, Goh said. The debut of up to 100 times leverage added fuel to the fire.

“BitMex is probably at the center of the whole ecosystem right now,” Shekhar said. He figures that BitMex, which holds the largest market share of crypto derivatives trading in the world, is making at least $700,000 in fees from derivatives trading a day.

But investors need to understand the risk as well as the potential rewards, Goh said.

“Derivatives contracts are a zero sum game,” Goh said. “The money someone makes is the loss of someone else.”

To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Dave Liedtka, Brendan Walsh

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.

‘Bart Simpson Pattern’ Sees Bitcoin Spike, Drop Time and Again .
Bitcoin dropped then spiked and dropped again in Wednesday morning trading. The pattern looked familiar to fans of America’s favorite lemon-toned television family. “We joked about it -- it was the Bart Simpson pattern where it jumps up like this and spikes around a little bit like Bart Simpson’s head,” said Justin Litchfield, chief technology officer at ProChain Capital, referring to the fictional son of Homer and Marge Simpson in one of the longest-running sitcoms on television, Fox’s “The Simpsons.” “It’s been doing that a lot lately with these really sharp spikes.

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