A significant development occurred on Friday, highlighting the accelerating institutionalization of the bitcoin market, which has been driven by individual investors for years. This is due to the growth of options linked to BlackRock's bitcoin exchange-traded fund (ETF), IBIT, which have surpassed the total bitcoin options trading on the offshore platform Deribit. Notably, IBIT options have closed the gap with Deribit's bitcoin options market in just two years, despite Deribit's head start since 2016.
On Friday, the dollar value of open IBIT options contracts on Nasdaq, known as open interest (OI), reached $27.61 billion, slightly exceeding the $26.90 billion in Deribit's bitcoin options, according to data from Volmex. This milestone indicates that the regulated, institutional-grade bitcoin investment and derivatives infrastructure in the US is now on par with the offshore market. The emergence of a thriving, regulated market in the US could encourage more Wall Street institutions to explore digital assets, ultimately leading to more mature price discovery. Deribit's Global Head of Retail Sales and Business, Sidrah Fariq, views IBIT's rise as a positive development for the broader crypto derivatives ecosystem.
"US retail investors can access regulated leverage and options exposure through IBIT options, which is further driven by the current macro environment of supply chain uncertainty, energy shocks, and geopolitical risks, naturally increasing demand for hedging and options strategies," Fariq stated. Options are derivative contracts that grant the purchaser the right to buy or sell the underlying asset at a predetermined price at a later date. Analysts use open interest as a measure of market size and participation, with higher open interest indicating a deeper and more liquid market.
Traders utilize options to hedge existing positions, speculate on price direction, and generate income from coin or ETF holdings. One popular income-generating strategy involving IBIT ETF and IBIT options is the covered call strategy, which allows investors to profit from BTC's implied volatility by holding the ETF and shorting IBIT calls at levels above the ETF's current market price. Although the two markets now match in scale, they differ in positioning, revealing insights into trader sentiment. According to Volmex, the majority of open interest in IBIT call options suggests expectations of an ETF rally to levels equivalent to BTC trading at $109,709 in the near term, roughly 41% higher than the current market price.
In contrast, positioning in Deribit options is bullish but more measured, indicating expectations of a rally to $106,000. "Onshore call OI is concentrated roughly 4 percentage points further out-of-the-money than offshore, and the onshore average delta is slightly lower, consistent with onshore flow being dominated by retail upside speculation and systematic call overwriting programs," Volmex noted. ETF holders tend to be more patient, with options having expiry dates that depend on the price of IBIT or spot BTC at the time of settlement. Analysis of activity across both markets suggests that IBIT options are approximately two months longer-dated on an OI-weighted basis, indicating that ETF holders have a longer investment horizon compared to offshore investors.
Lastly, IBIT's implied volatility is higher than the implied volatility derived from Deribit's BTC options, which Volmex attributes to the demand for put options from ETF holders who cannot easily short bitcoin directly. Overall, IBIT's rapid rise in the options market is notable, and while it may rival Deribit in scale, the two are not direct substitutes, as IBIT options primarily cater to regulated, onshore investors accessing bitcoin exposure through traditional brokerage channels, while Deribit remains the go-to platform for global investors.
"I don't see this as competition; rather, it expands the market. As more participants become comfortable trading options via IBIT, it ultimately benefits the broader ecosystem, and venues like Deribit will benefit from increased sophistication and flow," Fariq said.