The Inefficiency of Commodity Networks

When there is an imbalance between competitors, consumers benefit using the commodity network's inefficiency, according to Emerson Li, brand lead at BingX.

Bitcoin traders have suffered the most losses in the 2022 bear market, as many are still selling their tokens at a loss. As a result, some investors have fled to save haven assets; others have exited the market completely, and others have turned to crypto derivatives's enigmatic market.

To discuss this, Cointelegraph spoke with BingX's brand lead Emerson Li. BingX is a Singaporean social-based cryptocurrency exchange known for its leaderboards, where users can compete with others for return on investments and share ideas with their followers. The exchange processed around $319 million in trading volume within the past 24 hours, mainly consisting of derivatives. Here's what Li had to say about the recent market downturn:

BingX's users are also proliferating; compared with Q1 2022, Users number increased by 70% in the second quarter, and transaction volumes doubling since this round of slumps. We believe that its demand for derivatives is still increasing because it allows users to profit from falling prices, a feature that other products do not have.

During bear markets, traders can purchase derivatives known as put options to either hedge their positions or speculate that the value of underlying tokens will fall. Shorting the coin itself can be done, but violent and periodic bear market rallies can lead to theoretically infinite losses on one's short position. In addition, a lack of liquidity for borrowing coins to short may result in exchanges charging high-interest rates on one's positions. The put buyer's losses are limited to the premium they paid for the derivative; there are no additional interest fees.

Li said that BingX has seen a sharp rise in deposits as of late. "Since high market volatility is good for the derivatives market, we see more users participating in such transactions and creating more demand for deposits."

It seems that funds are flowing back to CeFi products from DeFi protocols. "For high-risk products such as DeFi staking, we think traders panicked under the recent market, affected by the Terra Luna affair and the problems with many DeFi protocols. Users' risk appetite has decreased, and demand has declined," said Li.

dYdX, a decentralized crypto exchange known for its margin and perpetual contract products, saw its weekly trading volume fall from $12.5 billion on Oct 24 to Oct 30 last year to about $1.9 billion during the same period in 2019. The trading volume is still higher than it was one year ago, partly due to the aforementioned risk-hedging tailwind.

Experts from Glassnode noted that the number of tokens held in wallet addresses by both new investors and crypto whales had been increasing significantly during the sell-off. The increase in token holdings has apparently diminished since mid-June, as a spike in liquidations on dYdX, mainly in the Ethereum and Bitcoin markets, has subsided.