Blockchain Bites: $ 10B in Bitcoin Futures, Price Wobbles and Liquidations

Bitcoin topped $ 34,000 for the first time this weekend and has since seen a double digital correction in price. The most recent cryptocurrency rally came when the Bitcoin network celebrated its 12th day of the Genesis Block, on January 3 – the anniversary of when the first bitcoin block was extracted in 2009.

CBDC experiment
Ukraine plans to launch a digital version of its hryvnia currency on the Stellar blockchain. This is the latest in a series of project projects by European governmental and institutional actors who have allied with Stellar, including an effort by euro stablecoin and a tokenized securities pilot from one of the oldest banks in the world.

red envelopes
Shenzhen is doubling the amount of digital yuan that residents can win in the lottery (up to 200 yuan) to test its new government-backed payment system. The Digital Currency Electronic Payments (DCEP) platform is the most advanced and visible CBDC experiment to date.

Imminent launch
An Ethereum tier 2 scaling solution is expected to go online on January 15 (The Block). Edan Yago, a Bitcoin developer, argued in a recent article that the emergence of scaling solutions outside the network may portend the end of alternative tokens.

Open interest
Bitcoin has risen from about $ 19,000 to more than $ 30,000 in the last four weeks of 2020 – a meteoric rise that several industry watchers believe is likely to continue. Yesterday, the cryptocurrency set a new high of $ 34,347 before hitting a “much needed restart”.

As bitcoin ventures into unfamiliar territory, many institutional and retail traders are betting on its future price. As of Sunday, there were more than $ 10 billion in open futures contracts, all looking to profit from the rise or fall of BTC. This is a record amount of capital, according to data encryption company Skew.

Futures give traders the right to buy or sell assets at a predetermined price, on a specified date or within a window of opportunity. They are a way of gaining exposure to a market without necessarily holding the underlying asset. A type of financial product, futures and other options invite institutional participants to cryptographic markets.

As Skew CEO Emanuel Goh told CoinDesk Research Director Noelle Acheson: “In 2020, institutions finally adopted bitcoin, but not always in the way you would expect. For example, sophisticated investors, such as hedge funds, have sought to capture spreads by observing the inefficiencies of this nascent market. This translated, in particular, into the positioning of leveraged funds for CME bitcoin futures, making new records sold almost weekly in the last quarter of 2020 ”.

In fact, last week, the Chicago Mercantile Exchange (CME) topped the charts in terms of open bitcoin futures contracts, with more than $ 1.66 billion at stake. CME has become synonymous with involvement with institutional cryptography. Other derivative platforms, including BitMEX, OKEx and Huobi are also seeing growing interest.

This influx of capital, coupled with bitcoin’s 24/7 global market infrastructure has led to some extravagant speculation. Last week, one of the biggest crypto option trading platforms, Deribit, opened up a market that allows people to bet that bitcoin will rise to $ 200,000 on December 21, 2021.

Volatility is the name of the game. While bitcoin plummeted nearly 15% below the $ 30,000 traded yesterday – the steeper since it exceeded $ 20,000 in December – billions worth of futures and options positions were liquidated.

Industry publication Decrypt (citing data from the tracking site Bybt) reported that more than $ 1.14 billion was paid off during this price reduction. Settlements happen automatically when the bitcoin price falls below a trader’s leveraged position.

As several cryptoratti have pointed out – the $ 6,000 drop in bitcoin (and recovery) was greater than the value of cryptography in its lowest point last year.