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 an...read more...