Is a new phase of capital allocation likely to emerge or will everything be “restored to order”? How are the shifting trends affecting crypto trading behaviors and the wider industry’s relationship with the “traditional” world itself? We discussed all this in our fireside chat, a recap of which is below.

Guests

The fireside chat was moderated by Selim Baek, OKEx’s business development manager for APAC. The guest panelists included Benjamin Roth, the global head of trading at Kenetic Tradings; Jae-Hong Kim, the lead quantitative trader at WaveBridge; Danny Yuan, a co-founder of 8 Blocks Capital; and Justin d’Anethan, a sales manager for Diginex.

Watch the discussion here.

Brief excerpt

Selim: We are going to begin with what’s going on with Bitcoin’s price. Since today we hit $11,000, I just wanted to hear your take on this sudden surge and the price volatility we saw this week and the last.

Will we finally see a different pattern emerging or will the market revert back to a deadlock? Jay, I know that you’re a lead quant trader at WaveBridge, do you have any opinion on the current situation? What is your take on the BTC price levels nowadays?

Jay: As you mentioned, we recently observed historically low volatility and volume levels since the corona crash that stalled the markets until a week ago — when we started observing sharp gains.

The most recent surge, as per our analysis, can be associated with the cumulative increase of money flowing into exchanges as well as the exponential rise of DeFi, which in turn has increased demand for Ethereum and ERC tokens.

In terms of crypto derivatives, we’ve seen that volumes have nearly doubled since last year, and we see this as a positive sign that the market is further maturing.

We also saw favorable regulatory announcements recently, which can only be good news for crypto. In terms of what this means for the foreseeable future, an increase in volatility leads to an increase in volume — thus, this only means more opportunities for new entrants in the market. In our opinion, overall, an increase in volatility shouldn’t be looked upon as an issue but an opportunity to mature.

Selim: Ben, as the global head of trading for a high-frequency trading firm, what is your take on the overall pattern in the market so far?

Ben: I’m going to agree with Jay! It’s good to be out of that range that we seemed to be stuck in — in terms of Bitcoin, at least.

It was kind of led, I guess, by Ethereum, which itself was somewhat led by the rise of DeFi, which I think we’re going to talk about later in the panel. It is quite interesting. I have a lot of thoughts around that.

For Bitcoin, there was a significant consolidation in that range, and people were broadly looking at that $10,000-$10,400 area as a resistance. Once we got through that, we surprisingly shot up another 10%.

Overall, I’m bullish. But the one caveat is that everyone is bullish. What typically happens in this kind of environment is that, even if you get more money coming into the space, you’re going to get some fairly sharp reversals — as a lot of people are probably a bit late to the rally and you know a lot of weak hands.

We’ve actually already seen that in the last couple of days, with the market grinding higher and then all of a sudden falling 5% in the space of one five-minute candle. I expect more of that going forward, which for us is great, as a high-frequency firm. These are the conditions that we enjoy, and I think a rising market on higher volumes and higher volatility is kind of the perfect storm for everyone. Most people make money, you see higher volumes and that brings more people into the space.

You also see the favorable regulatory climate that Jay mentioned. I think there are a lot of tailwinds there, but I’d be cautious and careful with the amount of leverage because it probably will be volatile.

Selim: What is your general take on the crypto derivatives trading this week? What do you foresee?

Danny: As a high-frequency trading firm as well, we kind of echo what Ben is saying. Over the past month or so, we have seen the BTC price pretty stable around the $9,000 level. We’ve seen on Twitter that people have been saying “oh, implied volatility at an all-time low, realized volatility is at an all-time low.” But over the past week or so, BTC has gone up 20%, so the volatility has been also 20–30 points from the low 30–40 range. Over the next month or two, I think the volatility will be in line with what I expect, and I don’t expect it to go much higher.

If you look at the options market on OKEx, for example, you know the one-month volatility came close to what the realized three months volatility is, roughly. Som I don’t think volatility will go higher at this point.

Ben: I’m going to jump in — I agree, Danny! I think that the structure of the market tends to result in higher bursts of volatility. On the downside, a lot of the derivatives products are coin-margined, so you get this convex situation on the downside where people’s collateral values are going down.

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Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary. This recap has been edited for clarity.

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was originally published in OKEx Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.