The market for crypto options developed rapidly in the second quarter of 2020. According to a report from the crypto derivatives industry, TokenInsight, The trading volume increased by 166% compared to the second quarter of 2019 compared to the previous year.
The derivatives that determine these volumes are futures and options. While the future grow with dealers who bet on bullish price sentiment, both open interest and The option volume has reached its all-time high.
All time highs
On Wednesday, Open interest in Ether (ETH) options reached an all-time high of $ 351 million at Deribit and $ 37 million at OKEx. Indeed, open interest in options The ether is 2.5 times higher than in early July.
The day before the largest Bitcoin (BTC) option expiration on July 3rd Interest in Bitcoin options hit an all-time high of $ 1.7 million in Deribit and $ 268 million in CME. while the daily amounts in Deribit doubled its all-time high. Exceeded 47,500 contracts traded on July 28th.
This all-time high the day before it expires on the last Friday of the month can often mean increasing adoption of structured products and options. especially in view of the open interest also in CME, the world’s largest derivatives market.
Luuk Strijers, commercial manager of Deribit, talked about what Open Interest is the best indicator to measure the market and told Cointelegraph: “Open interest is the best indicator for assessing market acceptance. If you look at the charts, it is clear that we are approaching the high from late July.”. He added: “The outstanding interest in BTC options is currently 116,000 contracts with a face value of $ 1.5 billion.”
New horizons for investors
Options are financial instruments that investors can use to buy or sell an underlying asset, depending on the type of contract. Call options give their holders the right to buy an asset at the strike price within a certain period of time, while put options give their holders the right to sell an asset under similar conditions. Denis Vinokourov, Head of Research BeQuant, an institutional brokerage provider and cryptocurrency exchange, said Cointelegraph:
“Options are a very efficient way to hedge exposure to the underlying product, be it Bitcoin or Ethereum Spot or even futures / perpetuals. In addition, it is easier to structure products that offer ‘performance’ and this has been particularly attractive to market participants, especially in terms of the excitement of side market price action. “
Lennix Lai, Director of Financial Markets at the Cryptocurrency Exchange OKEx, told Cointelegraph that traders need to be careful since “open high rates alone don’t mean the market is bullish or bearish”, and added that investors Propensity for long strategies:
“We have recognized that there are many more professionals who use options to only secure their BTC portfolio for the long term. And there are many more structured products out there that are designed for professionals to improve performance or to make exotic profits. “
With the price of Bitcoin briefly breaking the $ 11,900 mark several times earlier this month, The general interest in cryptocurrencies has increased. Bitcoin was up 27% from July 1. What is the summit highest seen in 2020. Bitcoin options are mostly traded right now Deribit, CME, OKEx and LedgerX, while Bakkt, a cryptocurrency exchange belonging to the main traditional exchange Intercontinental Exchange does not see any options even though the product is listed on its platform.
Also, The sell / buy ratio increased from 0.52 per month to 0.76 on August 6th. which means i know sold a higher proportion of put options compared to call options. That is a strong indicator of bullish sentiment currently held by investors. Lai added to this thought:
“Given the growing demand for Bitcoin options, open interest and volume, this seems to suggest that investors continue to view Bitcoin price and the more important macro factors such as the US dollar’s fall and all-time highs positively. of gold, the demand for Bitcoin in general is increasing. “
Ethereum 2.0 and DeFi Drive Demand
In 2020, it appears that more investors with options will acquire greater exposure to ETH. Ether, which ranks second behind Bitcoin in the field of cryptocurrency, has become one of the Top experimental labs for blockchain scalability supported by its large institutional and business development communities. So, For ETH it is natural to become a speculative asset more and more decentralized applications are being developed.
The upcoming proof-of-stake change from Ethereum to Ethereum 2.0 and the rapid growth of the DeFi space have proven to be large variables that are fueling bullish sentiment and adding more credibility to the network. At this point in time, ether options are mainly traded by retail investors They are not yet traded on regulated exchanges such as CME and Bakkt. growth it is further evidence of the community interest. Further explaining the statistics for ether options and futures traded on Deribit, Strijers said:
“The number of ETH use cases continues to grow and investors are taking advantage of this potential. The open interest in Deribit ETH options has increased sevenfold from USD 30 million and USD 50 million six months ago to USD 350 million, which corresponds to a market share of 90%. And while spot prices at ETH are peaking, so is the open positions in ETH futures, which hit nearly $ 1.5 billion, a new all-time high. “
With monthly growth of over 60% and a profit to date of over 200%, ETH exceeded the USD 400 mark at the beginning of August. The impact of starting Ethereum 2.0 PoS Final Testnet “Medal” and the impact on DeFi space Now they are being taken over by the market. Institutional interest was on the news too, as Arca Labs launched an Ethereum-based fund that is registered with the United States Securities and Exchange Commission (SEC).
Is the cake growing?
While Deribit currently has the largest share of the options market, There are new players who have tried to capitalize on this surge in investor interest. While Strijers welcomed more competition in the room as it would help the cake grow, According to Lai, certain complexities can arise:
“One of the prerequisites for a market for liquid options is an equivalent or even more liquid futures market. Not to mention the complexities of settlement, fixed price and margin, which is much more complicated than delta products like futures. “
Vinokourov deepened this perspective by comparing the differences between a crypto derivative exchange and a spot exchange. It turned out that the greatest challenges are to maintain a liquid order book “Across a wide range of maturities and exercise prices, with a suitable motor that is robust enough to withstand sudden volatility spikes”, plus a system Institutional grade on risk management. Opinion:
“If all of that weren’t enough, customer acquisition is much more difficult than the cash equivalent as fewer companies market these products and require institutional-level customer management, which crypto exchanges can’t always offer.” .
Regardless of how the options cake is split, it will likely only continue to grow in size, especially with exchanges like CME now becoming a very prominent player in the room. The bullish sentiment from BTC and ETH will continue to support this growth by giving investors more opportunities to speculate.