A notable development occurred on Friday, marking a significant acceleration in the institutionalization of the bitcoin market, which has long been driven by individual investors. This is evident in 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.
In just two years, IBIT options have bridged the gap with Deribit's bitcoin options market, which has been in operation since 2016. On Friday, the open interest in IBIT options contracts on Nasdaq reached $27.61 billion, slightly higher than 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 rise of IBIT options is expected to embolden more Wall Street institutions to explore digital assets, leading to more mature price discovery.
Sidrah Fariq, Deribit's Global Head of Retail Sales and Business, views IBIT's growth as a positive development for the broader crypto derivatives ecosystem, providing US retail investors with direct access to regulated leverage and options exposure. Options are derivative contracts that give the purchaser the right to buy or sell an 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 use options to hedge existing positions, speculate on price direction, and generate income on 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 shape, revealing distinct trader sentiment. According to Volmex, the bulk 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, suggesting expectations of a rally to $106,000. The two markets also differ in terms of expiry dates, with IBIT options having longer-dated expiries, reflecting the underlying holder base of longer-horizon ETF investors onshore versus more tactical positioning offshore. Lastly, IBIT's implied volatility is higher than that of Deribit's BTC options, which Volmex attributes to the demand for put options as a hedge by ETF holders.
Overall, IBIT's rapid rise in the options market is striking, and while it may not be a direct substitute for Deribit, it expands the market and increases sophistication and flow, ultimately benefiting the broader ecosystem.