Crypto derivatives trading increases as investors hedge positions after FTX shock

Nov 10 (Reuters) – Trading volumes in bitcoin futures and exchange-traded funds (ETFs) have exploded as investors sought to hedge their positions following this week’s decline in digital tokens triggered by turmoil on crypto exchange FTX.

CME bitcoin futures November contracts traded at $17,250, with volume of 13,292 at 11:24 EST (1624 GMT), which was a 3% discount to the spot price of $17,770.

Trading volumes rose on Tuesday and Wednesday as FTX’s woes worsened, reaching 48,554 and 32,168 contracts respectively, significantly higher than volumes over the past two months which hovered between 4,902 and 27,309.

Bitcoin jumped 10% on Thursday after hitting a late-2020 low earlier in the day when major crypto exchange Binance walked away from a bailout of FTX, leaving the firm scrambling to plug a reported $8 billion hole in its economy.

The ProShares short bitcoin strategy ETF (BITI.P), a bearish play on CME bitcoin futures, saw record trading volume on Wednesday as investors sought “regulated, transparent futures market,” ProShares Global Investment Strategist Simeon Hyman said.

“This suggests an overwhelmingly strong unison desire to hedge, with shorts being the dominant force in leveraged exposure at the moment,” said Vetle Lunde, an analyst at Norway-based crypto research firm Arcane Research.

Meanwhile, the ProShares Bitcoin Strategy ETF (BITO.P), which was halted for trading on Wednesday, has seen a 300% jump in trading volume from its previous high on October 21, 2022.

Assets under management for the BITO fund have shrunk by nearly a third since its launch nearly a year ago to about $500 million, according to Refinitiv Lipper data.

Funding rates representing sentiment in the perpetual swaps market, a major part of the bitcoin derivatives world, were negative 0.0219% on Thursday, according to Coinglass, trading near levels last seen in March 2020, Lunde of Arcane Research said.

Negative funding rates suggest that sentiment is bearish as investors have to pay to hold a short position.

Some market participants reported having difficulty borrowing and shorting cryptocurrencies.

“We’ve been doing some spot trading in the last few days and trading desks are very conservative with risk management right now, so it wouldn’t surprise me that the futures markets are going to be a little difficult to navigate,” said Greg King, CEO. at Osprey Funds.

Reporting by Medha Singh and Lisa Pauline Mattackal in Bengaluru Editing by Matthew Lewis

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