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The crypto market has been experiencing a steep decline since November 2018. Popular cryptocurrencies such as Bitcoin, Ethereum, Ripple etc. sank to their lowest price point in over a year and the same is true about other altcoins, smaller in market cap.
Bitcoin was up by 1,400 percent, touching the impressive mark of $18,672 in December 2017, but since then its market price has dropped by 80 percent from the peak, and the collective crypto market cap went down below the $100 billion levels for the first time in the recent crypto market crash.
The continuing plunge of the crypto market has created a panic-stricken atmosphere, driving the crypto investors and miners towards traditional methods of raising cash. Cryptocurrency aficionados are now moving towards selling derivatives linked to digital tokens to get out with something out of their diminishing virtual assets and to survive the collapse of the market.
Sam Bankman-Fried, chief executive officer of Alameda Research, 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, who create new digital coins by validating transactions on the blockchain, and the companies that had raised quick cash in the ICO boom of 2017, are now having a hard time to keep their respective businesses running; in fact, they are the main sellers of derivatives. The large chunk of traders who previously had quit traditional assets for crypto are now coming back to options trading, a trading possibility popular among stock investors. QCP Capital and Akuna Capital, firms staffed by former employees of hedge funds, are among the key sellers of derivatives similar to covered call options.
Talking about miners, Dovey Wan, founding partner of crypto-asset investment fund Primitive Ventures, said that miners have made themselves vulnerable by over-investing in mining hardware and infrastructure. According to JPMorgan Chase, the miners are now in an extremely competitive arena alongside much more experienced veteran traders. JPMorgan further explained that the average cost to create one Bitcoin was $4,060 in the fourth quarter of 2018 which was $460 higher compared the current market price of Bitcoin which stands at about $3,600.
Targeting these miners, Sath Ganesarajah, a former Citigroup Inc. credit derivatives trader concluded:
“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.”