BTC and ETH Crypto Derivatives in Demand, Market Expected to Grow Further

Published on by Cointele | Published on

The crypto options market has been evolving rapidly over the second quarter of 2020.

While futures grow with traders betting on a bullish price sentiment, both open interest and volumes of options have reached all-time highs.

Luuk Strijers, the chief commercial officer of Deribit, spoke of OI being the best indicator to gauge the market, telling Cointelegraph: "Open interest is the best indicator to assess market adoption, and looking at the charts, it is apparent we are close to the end of July highs." He added: "BTC options open interest is currently 116K contracts with a notional value of USD 1.5 billion."

"Options are a very efficient way to hedge exposure to the underlying product, be that Bitcoin or Ethereum spot or even futures/perpetuals. In addition to that, it is easier to structure products that would offer 'yield,' and it is this that has been particularly appealing to market participants, especially in the wake of sideways market price action."

"We have recognized that there are a lot more professionals who are leveraging options for hedging their long-only BTC portfolio. And there are lots of more structured products available in the market tailored to professionals for the sake of yield enhancement or exotic payoff."

Bitcoin options are currently trading mainly on Deribit, CME, OKEx and LedgerX, while Bakkt, a crypto exchange owned by major traditional exchange Intercontinental Exchange, sees zero options volumes despite having the product listed.

"Looking at the growing demand for Bitcoin options, OI and volume, it would seem to suggest that investors are still bullish on Bitcoin price, and with the greater macro factors such as the drop in the U.S. dollar price and an all-time high in gold, the demand for Bitcoin, in general, is rising."

"The number of use cases for ETH keeps growing, and investors buy into this potential. Deribit ETH options open interest has grown 7x from USD 30-50 million six months ago to USD 350 million now which represents a 90% market share. And while ETH spot prices are peaking, the same applies to ETH futures open interest, which is almost reaching USD 1.5 billion, a new all-time high."

"One of the prerequisites of a liquid options market is an equally or even more liquid futures market. Not to mention the complexity of handling the liquidation, mark price and margining, which is far more complicated than delta product-like futures."

Irrespective of how the options pie is split, arguably, it's only set to grow even further in size, especially through exchanges like CME now becoming a more prominent player in the space.

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