Over the past few days, Bitcoin and other cryptocurrencies have shown a slow but steady recovery from last week’s severe downturn. The overall crypto market is experiencing a gradual bounce back after many assets hit their lowest points in seven months.

The recent market decline impacted the derivatives sector severely. However, as conditions improve, derivatives contracts are starting to stabilize. Bybit has released a report in collaboration with Block Scholes, featuring insights on the derivatives market’s recovery.

Recovery in the Derivatives Market

The report reveals that BTC and ETH have risen above $92,000 and $3,000, respectively. Their resurgence reflects an increased global risk appetite, bolstered investor sentiment, and encouraging macroeconomic indicators. Although participation in derivatives remains historically low since the liquidation event on October 10, BTC and ETH perpetual swaps recorded several sessions with positive rates this week.

Despite the steady rates for BTC and ETH during the sell-off, altcoin rates struggled. Nevertheless, both BTC and ETH showed consistent positive funding rates over the last fortnight. During last weekend’s market turmoil, altcoin pairs had to pay a premium for leveraged short positions.

Following this, open interest and volumes have stayed relatively subdued across altcoin derivatives. However, analysts have noted that short-term implied volatility metrics suggest traders are discounting their most severe fears of further downtrends in the near term.

“Short-tenor implied volatility levels no longer trade at such an extreme premium after the normalization of the term structure of volatility, and puts no longer hold as strong a premium above calls (despite not fully pricing out a preference for downside protection),” the report indicated.

Positive Macroeconomic Environment

The reaction from altcoin derivatives instruments last weekend pointed to a considerable demand for short positions to capitalize on any additional price dips. Conversely, options have shown a slight decrease in their preference for puts.

The most remarkable large-cap altcoins that have seen substantial gains in this week’s gradual recovery include Solana (SOL), Toncoin (TON), Cardano (ADA), and Curve DAO (CRV), all of which have recorded notable open interest in perpetual swaps.

Additionally, the recovery in cryptocurrencies appears to align with a favorable shift in the macroeconomic context. The S&P 500 index has shown some upward momentum, and the conclusion of the U.S. government shutdown has alleviated some uncertainties clouding the Federal Reserve’s decision-making as we approach the next FOMC meeting. There is strong speculation that the upcoming meeting might conclude with a 25 basis points cut, possibly sparking a rally in BTC.