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Bitcoin Volatility Highlights Divergence Between Prediction and Derivatives Markets
Bitcoin’s recent swings have exposed a persistent pattern in crypto: derivatives traders reacted quickly to risk, while prediction markets adjusted far more slowly.
Welcome to Asia Morning Briefing, your daily roundup of key stories and market moves during U.S. hours. For full coverage of U.S. markets, see CoinDesk’s Crypto Daybook Americas.
As bitcoin slid, $75,000 put options saw open interest spike, and over $500 million in leveraged long positions were liquidated in just 24 hours. Yet January prediction contracts, like those on Polymarket, showed only a gradual decline in upside conviction.
The gap comes down to structure. Prediction markets focus on end-of-month outcomes. A violent two-day drop matters little if traders believe bitcoin could rebound before expiry. Galaxy Digital research notes these markets compress complex views into binary outcomes, overstating consensus and masking tail risk.
Derivatives markets, by contrast, respond immediately to risk. Data from Deribit showed $75,000 puts swelling nearly to the level of $100,000 calls as traders bought insurance against widening downside distributions and rising volatility.
The liquidity crunch made the divergence clear. Most liquidations occurred on perpetual futures exchanges, where margin dynamics amplify price moves. For leveraged funds, these events are urgent; for prediction markets, they only influence pricing if they shift beliefs about the final outcome.
QCP’s 2025 year-end review describes crypto as operating at two speeds: structural optimism coexists with sudden, leverage-driven drawdowns. Bitcoin didn’t drop below $75,000, but it also didn’t climb to levels prediction markets implied—highlighting how differently these markets measure the same risk.
Market Snapshot
- BTC: Traded just under $80,000, with traders focused on downside protection rather than fresh upside.
- ETH: Hovered near $2,300, extending a multi-week slide amid muted risk appetite.
- Gold: Around $4,750 per ounce, down sharply from a $5,300 test earlier in the week.
- Nikkei 225: Slightly higher Monday; China’s January factory activity grew fastest since October, while South Korean and Hong Kong equities fell.
Other Crypto Headlines
- Exchanges sanctioned alongside Iranian officials in Trump administration Iran crackdown (The Block)
- Ethereum security upgrades: Foundation advances post-quantum protections with leanVM and PQ signatures (CoinDesk)
