As of writing, Bitcoin has regained most of the territory it had lost when the market suddenly dropped in March. BTC prices are currently trailing in the upper 9K range, but what’s more interesting is that many analysts seem to agree that in the short term we won’t see the hyper volatility the cryptocurrency is renowned for. That could have a lot to do with derivatives.
Crypto derivatives have taken off in the last few years. In 2016, BitMEX was really the only player at the table but today Binance, OKex, Huobi, Deribit, AAX and many other crypto exchanges have all joined the fray. We now have a solid derivates market for Bitcoin in both futures and options trading, with CME as the world’s largest exchange for Bitcoin futures.
You’d think a more active derivatives market for Bitcoin would increase volatility, but another effect the market has is facilitating price discovery. Crypto traders might get it wrong, but the act of taking positions and putting money down forces their predictions to be realistic. This might be a key factor in tightening the price range of Bitcoin. Save for the drop in March due to abnormal circumstances, it is obvious that Bitcoin seems to be trading in a tighter range than the volatile price action the coin usually sees.
This could also explain why there haven’t really been any huge swings around the Bitcoin halving event. At least initially, derivatives may have levelled-off major volatility spikes. But that’s not to say that in the medium-term Bitcoin cannot soar to new highs in a more gradual fashion as it did over the course of months after the last halving event in 2016.
Like Bitcoin, Ethereum is on a steady path to recovery from the drop earlier this year. It hasn’t quite yet reached the levels before the drop in the $260 range, but it’s been trading in the $200 range for the last couple of weeks, with resistance levels at $220 last time the bulls charged ahead.
Usually there is a strong correlation between BTC and ETH when it comes to rallies and downturns, but at the moment the price of Ethereum has fallen behind Bitcoin’s gains by about 30%. Most likely that is due to the increased interest in BTC around the halving event that took place earlier this month. But now that the halving is over, the market might resume its normal day-to-day ETH trading strategies and activities, which means ETH could be set for a boost. The same reasoning applies to alt coins, which could see more price action going into the next few months.
The next system-wide upgrade to the Ethereum blockchain is scheduled for mid-2020, with a 95% confidence rate expressed by the developers. The Ethereum 2.0 update promises higher transaction throughput coupled with a new security model operating under the Proof-of-Stake model.
Besides technical developments, ETH is fundamental to the DeFi ecosystem, which is also still going strong and continues to expand with new innovative services. However, The total amount of ETH locked in DeFi – an indicator of confidence and engagement with the alternative financial ecosystem – still has some ground to recover between today’s ETH 2.625M and the all-time-high of ETH 3.235M in Feb 2020.
AAX’s native exchange token, AAB, was launched a little over a month ago, and has since appreciated by 39%. The token is currently trading at 1.39 USDT, and according to our most recent Intelligence Report, there are technical indications that there a big price movement is imminent.
By holding AAB, investors are really betting on the success of AAX and expressing confidence in the crypto exchange business. For those in doubt, you might find it interesting to read more about how crypto businesses and the markets in general have performed over the past few months to determine if you believe this line of business and the crypto industry have a place in the post-covid-19 economy.
With exchange tokens, investors are able to earn profits, even in a bear market. Especially because AAB benefits from daily coinburns, funded by all of AAX’s revenue that’s generated on the futures market; the main principle being that the more people trade on AAX, the more buy pressure there will be for AAB.
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AAX is the world’s first digital asset exchange to be powered by LSEG Technology. Offering OTC, spot, and futures, it provides a highly secure, deeply liquid and ultra-low latency trading environment; and a meeting point between crypto and global finance.