In a bid to stay afloat in the sinking cryptocurrency market, die-hard fans of cryptocurrency are looking at raising fiat money. Since their assets are already depreciating, crypto investors have decided start selling derivatives connected to digital tokens to salvage as much as possible.
This is the outcome of what is known as the crypto winter in the industry. Bitcoin, the most valuable token, came crashing down by 80% after gaining about 1,400 percent in 2017.
The Crypto Burst and Its Effects
Alameda Research’s chief executive officer, Sam Bankman-Fried, said:
“Anyone sitting on a stockpile of tokens saw in the bear market of 2018 that their business is at the mercy of crypto prices.”
“It can be crucial for those players’ survival to have some cash if digital asset prices go down.”
Miners, whose jobs are to verify transactions and also to produce new coins, and companies that got funded during the 2017 ICO boom are becoming more innovative to stay in business. They make up the main derivatives sellers.
Options trading has also become popular among certain ex-Wall Street professionals who dumped conventional assets for crypto. Notable players are Akina Capital and QCP Capital, employers of individuals who previously worked for high-frequency trading shops as well as hedge funds.
Lots of Investments Down the Drain?
Ever since Bitcoin futures were introduced in late 2017, they have been trading in public markets under the management of regulated firms like CME Group Inc., but on the other hand, the majority of options trade, which first appeared not long ago, are private bilateral contracts. What this means is that official statistics are not easily obtained.
However, long-term crypto holders who were struck by the collapse of the crypto economy have no choice than to partake in the trade. Miners, for instance, have found out that there is no profit in selling digital tokens compared to what it costs to make them, and for this reason, many have shut down.
When the going was good, miners expected it never to end, which led to a lot of investments in infrastructure and machines, making them vulnerable, stated Dovey Wan, founding partner of Primitive Ventures. In the fourth quarter, the production of one Bitcoin cost on the average $4,060, compared to its current value of $3,600, according to JPMorgan Chase & Co.
Sat Ganesarajah, a former credit derivatives trader at Citigroup Inc. said:
“But they’d better be on their guard against being duped by the clued-in derivatives houses.”
“The trading professionals will try to take the miners for a ride by getting them to sell options too cheaply.”