Paper Bitcoin: The Role of Derivatives

Plenty of folks like to claim derivatives are actively suppressing the Bitcoin price, and keeping it down. Too few are talking about the critical role they play in making the number go up.

G’day Folks,

If your journey is anything like mine, you probably had no idea what a futures market, or an options contract was until you became a Bitcoiner. The role and influence of derivatives has skyrocketed since the last cycle, and they remain a highly misunderstood component of market structure.

Open interest in futures markets is currently approaching an ATH when priced in BTC, and is back to levels comparable with the final days before FTX imploded.

For everyone with PTSD from the last cycle, where deleveraging events routinely wiped -50% off our net worth, this is likely setting off a few alarm bells.

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In today’s post, I want to address the topic of ‘paper Bitcoin’, which is a crowd favourite topic for salty-goldbugs, bored Bitcoiners, and engagement farmers alike.

I will explore some of the important market dynamics which make derivatives so critical for Bitcoin’s market structure, and are often overlooked in the campaigns and claims of ‘price suppression’ keeping the corn down.

I will even argue, that without derivatives, the number probably won’t go up.

If you’re relatively new to the world of derivatives, basis trades, and cash & carry trades, I would encourage a read/watch of Cash & Carry Confusion (free), and Leverage and Boredom (paid) for an introduction to this topic.

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📈 Reminder: you can find the charts from our articles on the Checkonchain Charting Website, and a guide in our Charts Tutorial Video.

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