There is volatility in the Bitcoin market once more as it has fallen by more than five percent since that last week.”6 This decline is said to have been due to derivatives trading activities including over leveraged positions; meaning this decline may well have helped in market stabilisation.
The downtrend in cryptocurrency markets
Derivative speculators largely influence cryptocurrency markets that seem to be in decline. Speaking about funding rates and openings on December 12, Adam Cochran noted that it’s not a good time for bitcoins. As at December 11, OI on all exchanges for bitcoin was approximately $12 billion. The outstanding interest (OI) comprises the unresolved or open BTC derivative contracts equivalent to approximately 0.1% of BTC market capitalization. This extent could potentially lead to higher levels of volatility in circumstances where imbalance ensues, as stated by Cochran.
Elevated funding rates in these markets are associated with the largest portion of this OI held by Binance. These are regular adjustments occurring between dealers and determined by discrepancies existing between continuous swaps and live prices. Cochran highlighted that excessively high funding rates paid by ByBit traders contributed to market instability: he said that in a sound market, the days of liquidation are vital for restoring equilibrium following continual increases. He however pointed out that without periodic reversals the market is too much in favor of too many winners.
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Likewise, cochran highlighted that the high leverage volatility on bitcoin and ethereum was as risky as any altcoin and might trigger steep declines in the prices. This could happen only if the leveraged volatility proves to be not substantial enough to change the existing trend. At press time, it traded as high as $41,869 following a near daily low of $40,321.