How Derivatives Amp Up Already Heady Crypto Markets

SourceWashington Post
SectorFinancial Markets
CountryMiddle east

Bitcoin has long been known for its violent swings in price. But the volatility isn’t just driven by tweets from Elon Musk or warnings from Chinese regulators: It’s also fed by a massive derivatives industry that has boomed on the back of voracious demand for leverage and speculative tools in cryptocurrency markets. In some ways it’s a tale as old as Wall Street, but now in a new digital wrapper.

For instance, when Bitcoin plunged as much as 30% in a day in May, leveraged-up positions in futures and options were wiped out, with the expected consequence of amplifying the sell-off as they had boosted the rally earlier.

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1. How big is the crypto derivatives market?

It’s pretty massive. In one 24-hour period ending July 19, for instance, Binance, the largest crypto exchange, recorded $42 billion of derivative volume, more than four times the activity in spot trades, Coinmarketcap data show. For context, CME Group Inc. saw more...