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Surviving Crypto Volatility With Derivatives Contracts

Surviving Crypto Volatility With Derivatives Contracts

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Different forms of derivatives trading could become the next step toward crypto mass adoption and give investors more transparency.

Volatility has been the dominant theme in financial markets lately. As uncertainty around COVID-19 and its impact on the economy deepens, markets have been swinging wildly. We’ve seen the S&P 500 falling off a cliff as well as risk assets across the board taking a beating. Cryptocurrency markets have been no different and have exhibited extreme volatility. Amid the pessimism, Bitcoin (BTC) broke below the $4,000 mark on Black Thursday and fell nearly 50% from recent highs. 

It’s been over a month since the crash, and though we have seen prices bouncing back sharply, the sentiment has not improved. There is still a fair amount of fear among traders, and they continue to stay hawkish. Such sharp moves hurt market confidence, and it will take some time before traders get comfortable carrying overnight risk again.

It is hard to say how long it will take for the markets to recover and for the true impact of the current crisis to be visible. Some estimates suggest that it will take as long as 12–18 months for the world economy and markets to fully overcome this shock. Given the backdrop, it’s fair to say that markets should remain choppy for some time and that the volatility is here to stay.

Volatile markets increase directional risk

Extreme volatility in the markets spells trouble for traders caught on the wrong side of price swings. On March 12, the price of Bitcoin dropped by over 40% and subsequently recovered 16% the next day. Over $750 million worth of positions went into liquidation amid these swings. 

Bitcoin volatility spiked to 250% per annum in March, and though it has cooled down to about 70%, it still remains quite rich. Carrying directional trades in such volatile market conditions is very risky. In fact, the higher the volatility, the higher the directional risk for traders. If traders don’t maintain enough margin in their positions, there is a chance of getting caught on a price whipsaw and getting liquidated. Violent price swings have been a regular feature since Black Thursday. This has made directional trading difficult not only for new traders but also for veterans. 

Isolating directional risk from volatility risk 

In calm market conditions, traders look to profit by catching the momentum of the market direction. If they predict the market direction correctly, they register a profit. Similarly, if the market moves against them, there will be losses. The amount by which a trader’s portfolio is going to get impacted per unit movement in price is called “delta” — a measure of directional risk. There is another risk to a trader’s portfolio, something that most traders tend to ignore during calm market conditions: the risk of price swinging up and down while it drifts in a particular direction. This risk to a trader’s portfolio is called “vega” and measures the risk against change in volatility.

Just as traders use futures contracts to position themselves for directional risk, options are useful for protecting against rising or falling market volatility. Traders can also use options to remove directional risk from their portfolios, partially or completely, and bet on market volatility alone. 

Some exchanges are at the forefront of innovation here and are offering products that allow traders to trade the volatility risk without taking any directional risk. Hence, should a trader believe that the market is going to stay volatile, they can buy volatility without exposing themselves to the effects of which direction the market moves in.

Growth in crypto options segment

As crypto derivatives markets mature, we are seeing more and more traders participate in options markets and trading volatility. In traditional markets such as equities, the volumes on options contracts can be multifold of those on futures contracts. Though crypto options markets have existed for a few years now, the volumes have been slow to pick up. 

Most crypto traders find options trading difficult to understand and intimidating. There is a need to package options in a way so that traders can easily understand the payoff profile without diving into the nitty-gritty. This would help reduce the friction and increase the demand for crypto options trading. A MOVE contract is one such product. Herein, a trader holds a straddle: a multilegged options position that will benefit from higher market volatility irrespective of market direction. 

The straddle strategy, simplified

One of the ways to own volatility is to buy a straddle. A straddle is nothing but a call and a put option combined together. Hence, one can create a long straddle position by buying a call option and a put option that have the same strike price and maturity. If the market rises, the call option becomes profitable; should the market fall, the put option starts to payoff. Building a straddle position by oneself can be complex for traders. Not only do they need to find liquidity in both the call and put options, but they must also execute both the legs of the trade simultaneously. 

MOVE contracts are nothing but a packaged straddle position. Thus, when a trader is buying a MOVE contract, they are essentially buying a call and a put option with the same strike and in equal amount. 

The crypto equivalent of trading the VIX

Cboe has an index called the Volatility Index, or VIX, which is also known as the fear index. The reason the VIX is called a fear index is because its value rises when market uncertainty or fear is high and falls when the market is calm. Investors can’t directly invest in the VIX, but they can bet on the VIX going up or down by trading futures on the VIX or by purchasing VIX-related products such as VIX futures exchange-traded funds. In cryptocurrency markets, trading MOVE contracts is the equivalent of trading VIX products, as it gives investors pure exposure to the volatility of crypto.

Removing settlement currency risk

Another important aspect of any derivatives product is the settlement currency — i.e., the currency in which the final profit or loss is realized. The default settlement currency for most crypto derivatives products is Bitcoin. This is understandable, given that when the crypto derivatives ecosystem was starting, stablecoins were still not commonplace. Thus, products that allowed payoff in Bitcoin or other cryptos were innovated. This was also partly driven by customer demand, as traders focused on increasing their count of Bitcoin. Things have changed a lot in the last 12 months, and we’ve seen a strong demand for stablecoin settlement in the crypto derivatives segment. 

Gold futures, stablecoin futures and the growing demand for stable assets

Other ways to combat a volatile market include switching to low-risk assets such as gold.  Futures contracts on gold-backed coins have provided crypto traders with a way to protect their portfolio value in times of widespread uncertainty. These derivatives have also opened a new sector of trading that allows crypto traders access to physical gold. They have been in high demand on many derivatives exchanges because of the recent gold price spike in the backdrop of the coronavirus scare and global markets sell-off.

Futures contracts on stablecoins are also getting popular, as there are arbitrage opportunities for traders to earn profit in a stable token’s value while taking minimal risk. Overall, the industry has seen a surging demand for a stable digital currency amid fears of an economic recession and will continue to rely on stablecoins as a safe haven.

Final thoughts

Derivatives provide a way for traders to hedge in times of high market uncertainty, isolate and protect against different kinds of risks, and aid in true price discovery. In the long run, a healthy derivatives market helps to reduce the long-term volatility of an asset class.

The crypto derivatives segment has seen huge growth in the last two years, but we’ve only scratched the surface as of yet. For mature asset classes, derivatives markets are four to five times the size of spot markets. Currently, Bitcoin perpetual swaps make for the lion’s share of the crypto derivatives segment. As crypto derivatives markets grow, we will see increased demand to trade futures on other coins beyond Bitcoin and for options, as they provide a way for traders to manage volatility risk.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Pankaj Balani is the CEO and founder of Delta Exchange. With over eight years of experience as a business leader and derivatives trader, Pankaj has dedicated the last two years to building Delta Exchange, a next-generation derivatives exchange where traditional financial instruments and cryptocurrency trading intersect. Pankaj has extensive experience in quantitative finance, derivatives and global capital markets through his positions at UBS Investment Bank, Edelweiss Asset Management and Elara Capital. He also led product and growth for Purplle.com, an e-commerce business that was recently funded by Goldman Sachs. He graduated from the Indian Institute of Technology in Delhi with a degree in engineering physics and obtained a master of business administration from the Indian School of Business.

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Are Voters Recoiling Against Disorder?

Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super…

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Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super Tuesday primaries have got it right. Barring cataclysmic changes, Donald Trump and Joe Biden will be the Republican and Democratic nominees for president in 2024.

(Left) President Joe Biden delivers remarks on canceling student debt at Culver City Julian Dixon Library in Culver City, Calif., on Feb. 21, 2024. (Right) Republican presidential candidate and former U.S. President Donald Trump stands on stage during a campaign event at Big League Dreams Las Vegas in Las Vegas, Nev., on Jan. 27, 2024. (Mario Tama/Getty Images; David Becker/Getty Images)

With Nikki Haley’s withdrawal, there will be no more significantly contested primaries or caucuses—the earliest both parties’ races have been over since something like the current primary-dominated system was put in place in 1972.

The primary results have spotlighted some of both nominees’ weaknesses.

Donald Trump lost high-income, high-educated constituencies, including the entire metro area—aka the Swamp. Many but by no means all Haley votes there were cast by Biden Democrats. Mr. Trump can’t afford to lose too many of the others in target states like Pennsylvania and Michigan.

Majorities and large minorities of voters in overwhelmingly Latino counties in Texas’s Rio Grande Valley and some in Houston voted against Joe Biden, and even more against Senate nominee Rep. Colin Allred (D-Texas).

Returns from Hispanic precincts in New Hampshire and Massachusetts show the same thing. Mr. Biden can’t afford to lose too many Latino votes in target states like Arizona and Georgia.

When Mr. Trump rode down that escalator in 2015, commentators assumed he’d repel Latinos. Instead, Latino voters nationally, and especially the closest eyewitnesses of Biden’s open-border policy, have been trending heavily Republican.

High-income liberal Democrats may sport lawn signs proclaiming, “In this house, we believe ... no human is illegal.” The logical consequence of that belief is an open border. But modest-income folks in border counties know that flows of illegal immigrants result in disorder, disease, and crime.

There is plenty of impatience with increased disorder in election returns below the presidential level. Consider Los Angeles County, America’s largest county, with nearly 10 million people, more people than 40 of the 50 states. It voted 71 percent for Mr. Biden in 2020.

Current returns show county District Attorney George Gascon winning only 21 percent of the vote in the nonpartisan primary. He’ll apparently face Republican Nathan Hochman, a critic of his liberal policies, in November.

Gascon, elected after the May 2020 death of counterfeit-passing suspect George Floyd in Minneapolis, is one of many county prosecutors supported by billionaire George Soros. His policies include not charging juveniles as adults, not seeking higher penalties for gang membership or use of firearms, and bringing fewer misdemeanor cases.

The predictable result has been increased car thefts, burglaries, and personal robberies. Some 120 assistant district attorneys have left the office, and there’s a backlog of 10,000 unprosecuted cases.

More than a dozen other Soros-backed and similarly liberal prosecutors have faced strong opposition or have left office.

St. Louis prosecutor Kim Gardner resigned last May amid lawsuits seeking her removal, Milwaukee’s John Chisholm retired in January, and Baltimore’s Marilyn Mosby was defeated in July 2022 and convicted of perjury in September 2023. Last November, Loudoun County, Virginia, voters (62 percent Biden) ousted liberal Buta Biberaj, who declined to prosecute a transgender student for assault, and in June 2022 voters in San Francisco (85 percent Biden) recalled famed radical Chesa Boudin.

Similarly, this Tuesday, voters in San Francisco passed ballot measures strengthening police powers and requiring treatment of drug-addicted welfare recipients.

In retrospect, it appears the Floyd video, appearing after three months of COVID-19 confinement, sparked a frenzied, even crazed reaction, especially among the highly educated and articulate. One fatal incident was seen as proof that America’s “systemic racism” was worse than ever and that police forces should be defunded and perhaps abolished.

2020 was “the year America went crazy,” I wrote in January 2021, a year in which police funding was actually cut by Democrats in New York, Los Angeles, San Francisco, Seattle, and Denver. A year in which young New York Times (NYT) staffers claimed they were endangered by the publication of Sen. Tom Cotton’s (R-Ark.) opinion article advocating calling in military forces if necessary to stop rioting, as had been done in Detroit in 1967 and Los Angeles in 1992. A craven NYT publisher even fired the editorial page editor for running the article.

Evidence of visible and tangible discontent with increasing violence and its consequences—barren and locked shelves in Manhattan chain drugstores, skyrocketing carjackings in Washington, D.C.—is as unmistakable in polls and election results as it is in daily life in large metropolitan areas. Maybe 2024 will turn out to be the year even liberal America stopped acting crazy.

Chaos and disorder work against incumbents, as they did in 1968 when Democrats saw their party’s popular vote fall from 61 percent to 43 percent.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.

Tyler Durden Sat, 03/09/2024 - 23:20

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Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The…

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Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The U.S. Department of Veterans Affairs (VA) reviewed no data when deciding in 2023 to keep its COVID-19 vaccine mandate in place.

Doses of a COVID-19 vaccine in Washington in a file image. (Jacquelyn Martin/Pool/AFP via Getty Images)

VA Secretary Denis McDonough said on May 1, 2023, that the end of many other federal mandates “will not impact current policies at the Department of Veterans Affairs.”

He said the mandate was remaining for VA health care personnel “to ensure the safety of veterans and our colleagues.”

Mr. McDonough did not cite any studies or other data. A VA spokesperson declined to provide any data that was reviewed when deciding not to rescind the mandate. The Epoch Times submitted a Freedom of Information Act for “all documents outlining which data was relied upon when establishing the mandate when deciding to keep the mandate in place.”

The agency searched for such data and did not find any.

The VA does not even attempt to justify its policies with science, because it can’t,” Leslie Manookian, president and founder of the Health Freedom Defense Fund, told The Epoch Times.

“The VA just trusts that the process and cost of challenging its unfounded policies is so onerous, most people are dissuaded from even trying,” she added.

The VA’s mandate remains in place to this day.

The VA’s website claims that vaccines “help protect you from getting severe illness” and “offer good protection against most COVID-19 variants,” pointing in part to observational data from the U.S. Centers for Disease Control and Prevention (CDC) that estimate the vaccines provide poor protection against symptomatic infection and transient shielding against hospitalization.

There have also been increasing concerns among outside scientists about confirmed side effects like heart inflammation—the VA hid a safety signal it detected for the inflammation—and possible side effects such as tinnitus, which shift the benefit-risk calculus.

President Joe Biden imposed a slate of COVID-19 vaccine mandates in 2021. The VA was the first federal agency to implement a mandate.

President Biden rescinded the mandates in May 2023, citing a drop in COVID-19 cases and hospitalizations. His administration maintains the choice to require vaccines was the right one and saved lives.

“Our administration’s vaccination requirements helped ensure the safety of workers in critical workforces including those in the healthcare and education sectors, protecting themselves and the populations they serve, and strengthening their ability to provide services without disruptions to operations,” the White House said.

Some experts said requiring vaccination meant many younger people were forced to get a vaccine despite the risks potentially outweighing the benefits, leaving fewer doses for older adults.

By mandating the vaccines to younger people and those with natural immunity from having had COVID, older people in the U.S. and other countries did not have access to them, and many people might have died because of that,” Martin Kulldorff, a professor of medicine on leave from Harvard Medical School, told The Epoch Times previously.

The VA was one of just a handful of agencies to keep its mandate in place following the removal of many federal mandates.

“At this time, the vaccine requirement will remain in effect for VA health care personnel, including VA psychologists, pharmacists, social workers, nursing assistants, physical therapists, respiratory therapists, peer specialists, medical support assistants, engineers, housekeepers, and other clinical, administrative, and infrastructure support employees,” Mr. McDonough wrote to VA employees at the time.

This also includes VA volunteers and contractors. Effectively, this means that any Veterans Health Administration (VHA) employee, volunteer, or contractor who works in VHA facilities, visits VHA facilities, or provides direct care to those we serve will still be subject to the vaccine requirement at this time,” he said. “We continue to monitor and discuss this requirement, and we will provide more information about the vaccination requirements for VA health care employees soon. As always, we will process requests for vaccination exceptions in accordance with applicable laws, regulations, and policies.”

The version of the shots cleared in the fall of 2022, and available through the fall of 2023, did not have any clinical trial data supporting them.

A new version was approved in the fall of 2023 because there were indications that the shots not only offered temporary protection but also that the level of protection was lower than what was observed during earlier stages of the pandemic.

Ms. Manookian, whose group has challenged several of the federal mandates, said that the mandate “illustrates the dangers of the administrative state and how these federal agencies have become a law unto themselves.”

Tyler Durden Sat, 03/09/2024 - 22:10

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

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