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Digital Derivatives WeeklyApril 10, 2020

Digital Derivatives - Crypto Market Correlated?

Jitender Tokas
Chief Business Officer
April 10, 2020
What's in this post?

    Digital Derivatives is a weekly newsletter bringing you the latest research, information and analytics from the cryptocurrency derivatives space brought to you by Delta Exchange.

    For last week’s edition, click here.


    Market Moves

    • Bitcoin (BTC) – $7,309.84 (+0.21%)
    • Ethereum (ETH) – $172.18 (+1.31%)
    • Ripple (XRP) – $0.199 (+0.38%)
    • Bitcoin Cash (BCH) – $265.07 (-3.23%)
    • Litecoin (LTC) – $46.16 (+0.10%)
    • EOS (EOS) – $2.74 (+0.38%)


    Derivatives Insights

    Market Caution And Skepticism Continues

    Major markets climbed throughout the world over the course of the past week, with cryptocurrencies, gold, oil and traditional market indices making gains despite global socio-political uncertainty flourishing.

    In the past week Bitcoin has seen a 15% rise in price, with Ethereum gaining +20%. In that same time span the S&P500 has gained 12%, Gold has gained 5% and oil has gained 24%. This is, of course, in the facing of growing economic turmoil, record global unemployment levels and a rise in global corporate bankruptcies.

    Over the previous 3 months the correlation between S&P500 and Bitcoin has been growing steadily, peaking in April. This is unlikely to continue, but the question remains as to which of the two will diverge and when.

    S&P 500 vs Bitcoin

    Open Interest Up 25% Last 2 Weeks

    Open Interest (OI) – a measure of the growth of interest and capital into a derivative market – has been trending upwards since the Black Thursday fall on March 12th.

    On the BTCUSD pair BitMex, Open Interest has increased from $370m on March 24th to $446m as of today – an increase of just over 20% in the span of two weeks. This has coincided with the price increase from $6.7k to $7.3k, a near 10% gain over two weeks.

    In the same time, Open Interest on the BitMex ETHUSD pair has risen from $34.7m to $49.4m, an increase of over 40%, as the price of Ethereum rallied from $130 to $170+.

    Over the coming weeks we see both Open Interest and asset price drive higher as we approach the upcoming BTC halving. There is skepticism in the air, with both trading volumes and price bouncing around. Spot trading activity has been outgrowing derivative trading volumes in recent weeks, which could ease downward pressure on cryptocurrencies.

    Spot trading volumes are at their highest level since June 2019 with a significant uptick in new account openings to coincide with the COVID19 lockdown. This is unprecedented and not typically something witnessed following significant price crashes.

    Whilst Open Interest is climbing gradually, leveraged traders were hurt by the events surrounding March 12th and it is unlikely that market confidence will return to pre-crash levels anytime soon – despite upcoming halving.

    Bitcoin Cash “Halves” – Profitability Drops

    Bitcoin Cash (BCH) has successfully completed its halving event, effectively cutting its issuance rate in half and reducing its block miner rewards.

    The Bitcoin Cash halving took place at block height 630,000, midday UTC on Wednesday, reducing the mining reward by 50% to 6.25 BCH per block. In essence, this means a 50% reduction in BCH miner revenue, severely damaging miner profitability, with many BCH miners now generating negative daily profits with significant infrastructure costs. The data here suggests that many BCH miners, at the current hash rate and price levels, are struggling to generate profits and are in the position where they must either:

    1. Mine at unprofitable levels for the foreseeable future in anticipation of a price increase.
    2. Switch their setups towards mining a more profitable network (e.g. Bitcoin);

    Since the halving, the hashrate of the BCH network has fallen by more than half. Put simply, the hash rate is a measure of the processing power of a specific network. A falling hash rate, as is currently the case with the BCH network, suggests a decrease in the processing power of the underlying network, resulting in an increased risk of attack.

    Despite already being on a downward trend since the middle of February, the hash rate of Bitcoin Cash has dropped by almost 50% in the few days surrounding the halving as miners switch to increasingly profitable networks (e.g. Bitcoin).

    The Bitcoin Cash halving events could foreshadow the upcoming Bitcoin halving which is a mere 35 days away. As a significantly larger network by all metrics, the same volatility should not be expected surrounding the Bitcoin halving.

    Delta Developments

    Launch of BTC-USDT 100x Perpetual Swap

    On April 5th we launched a BTC Perpetual Swap contract, settled in USDT, allowing for up to 100x leverage.

    BTC - USDT on Delta Exchange

    View the market here and learn more about trading our Perpetual Swap contracts.

    Pankaj Balani On CRYPTO101

    Delta Exchange Founder & CEO, Pankaj Balani, stopped by the CRYPTO101 podcast to discuss the cryptocurrency markets, the impact of COVID19 and the future of the crypto derivative markets, amongst many other things.

    Pankaj Balani Crypto 101

    Make sure to give it a listen here!

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