Bitcoin Down 50% From Peak Hammers Crypto Loans, Derivatives

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(Bloomberg) –

The 2021 bitcoin bubble blows away and hits a $ 1.3 trillion industry based on speculation and runaway leverage.

The damage from the latest sell-off is spreading across the world of cryptocurrency loans, options and futures, negating strategies to extract money from the famous basic trade into lucrative agriculture.

Even with the rebound on Wednesday, bitcoin, at around $ 31,700, is still trading near the bottom of its range over the past two months, about 50% below its April peak.

This means bulls are being trained to be self-contained as hedging costs rise and trading activity in the much-touted decentralized finance community dwindles.

“The hype has died down,” said George Zarya, CEO of cryptocurrency broker Bequant. “This is a 24/7 market, so it’s a grueling process for the entire industry. When summer comes, it’s just right in time. You need a little rest. “

Here are all the signs that crypto speculators have not yet recovered from the May debacle.

Spot and derivatives turnover is at $ 2.6 trillion this month, according to CryptoCompare, on track to its lowest level since December. The number of active and new bitcoin addresses has also dropped. On Deribit, the largest options exchange, Bitcoin implied volatility is rising again this week to 88% from a recent low.

Another window into how bullish sentiment is fading is the reversal of the underlying trade, a once profitable quantitative strategy that determines the spread between the futures market and the spot price.

When the $ 100,000 Bitcoin price target was in vogue in April, the annual premium on futures was roughly 50%. This effectively meant that some traders were so passionate about the underlying asset that they were willing to spend a lot of time on their bet.

But after the May crash, interest rates that bulls pay to roll over their futures have plunged to zero or even turned negative.

“The last month and a half has been challenging for traders trading with cash,” said Yuval Reisman, co-founder of YRD Capital, which distributes funds to systematic crypto managers. “The professionals prepared for the rainy day by devising new strategies.”

According to him, over the past month and a half, the fund’s profitability has remained unchanged: the growth in 2021 was 30%.

On the CME Group Inc. the initial portion of the bitcoin curve is nearly flat – unlike a few months ago, when the steep curve still signaled ever-increasing optimism.

In the future-oriented DeFi world – where financial initiatives such as lending are implemented on the blockchain by pooling coins across the internet – trading activity is slowing. The total value of DeFi has dropped to $ 54 billion from $ 89 billion at its May peak.

The big motivation for placing coins in these pools is to generate high returns, which are now falling as token prices decline and bullish sentiment, and retail traders are less interested in increasing.

Interest rates across multiple lending platforms for the USD coin pegged to the US dollar fell to about 2% on multiple platforms, according to LoanScan, compared to the pre-April period, when it usually climbed above 10%. …

“It’s very interconnected,” Zarya said. “It’s not a big surprise – the DeFi space has been a source of leverage.”

While Bitcoin’s fall since its peak in 2021 has created a domino effect throughout the crypto complex, for the industry’s backers it is all a resurgence as the digital currency revolution takes over Wall Street.

“The general consensus among professional quantitative crypto traders is that we are still in a super bullish cycle,” said Reisman of YRD Capital.

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