Bloomberg: Investors, Miners, Turn to Derivatives to Survive Crypto Winter

Crypto investors and miners are turning to derivatives such as options in an attempt to survive the protracted market downturn, a Bloomberg piece argues on Feb. 13.

The article presents the increasing popularity of complex trading instruments as a means of pocketing cash short term as being symptomatic of just how difficult it has become to weather this bear market - the longest in industry history.

"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."

With a host of seasoned financial professionals entering the digital assets space, the range of sophisticated trading instruments has diversified.

Bloomberg cites a representative from Singapore-based crypto trading firm QCP Capital, who disclosed that the firm had recently bought a three-month call option for a notional sum equivalent to 250 Bitcoin.

The strike price of the said contract has reportedly been set to $4,200 - so that if Bitcoin is trading below this at the time of the contract's expiry, QCP's counterparty will pocket a $666,250 premium and keep its BTC holdings.

Given the fact that many of these derivatives contracts are private bilateral contracts, as Bloomberg notes, official statistics are scarce.

The article contends that miners - squeezed by falling market prices - have become one of the main sellers of a type of derivative similar to a covered call option.

The trading professionals will try to take the miners for a ride by getting them to sell options too cheaply.

The article identified regulatory uncertainty, alongside the market price collapse, as major factors driving the decline.