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The Evolution of Crypto Price Discovery

Aug 19, 2021 · 4 min read

By Ashwath Balakrishnan, and Jeremy Ong

Market Update

The market caught strong bids mid-way through the Asian session and at North American open. Yesterday’s biggest winner, SOL and LUNA, have pulled back hard. Other L1s are starting to catch up. ATOM, AVAX, and KSM are all up over 10% today.

Derivatives Drive Price Discovery

Over the last year, futures and perps have become the most popular financial instruments in crypto. For BTC in particular, these instruments now account for well over 50% of volume on a consistent basis. Perpetuals are eating into spot market activity, becoming the prime source of price discovery. The push into derivatives has resulted in accelerated price discovery. The most obvious example of this is May. 2021, where over-exposed longs single-handedly caused a -30% day by getting liquidated en masse. The accelerative nature comes from easy access to leverage and the need for options market makers/dealers to hedge their exposure (or risk delta and gamma squeezes). As we

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