A notable development occurred on Friday, marking a significant milestone in the institutionalization of the bitcoin market, which has long been driven by individual investors. This milestone was achieved as the options linked to BlackRock's bitcoin exchange-traded fund (ETF), IBIT, have grown in size, with their open interest now surpassing that of Deribit, a major offshore player.
In just two years, IBIT options have managed to close the gap with Deribit's bitcoin options market, which has been in operation since 2016. On Friday, the open interest in IBIT options on Nasdaq reached $27.61 billion, slightly higher than the $26.90 billion in Deribit's bitcoin options, according to data from Volmex.
This shift indicates that the regulated, institutional-grade bitcoin investment and derivatives infrastructure in the US is becoming increasingly prominent, potentially leading to more mature price discovery and increased participation from Wall Street institutions. The rise of IBIT has been described as a positive development for the broader crypto derivatives ecosystem by Deribit's Global Head of Retail Sales and Business, Sidrah Fariq.
Fariq noted that IBIT options provide US retail investors with direct access to regulated leverage and options exposure, which is particularly valuable in the current macro environment. Options are derivative contracts that grant 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 additional income on their 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.
The two markets, IBIT and Deribit, now match each other in scale but 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.
In contrast, positioning in Deribit options is bullish but slightly more measured, suggesting expectations of a rally to $106,000. The average expiry date for IBIT options is approximately two months longer-dated than Deribit, suggesting that ETF holders are more patient. Lastly, IBIT's implied volatility is higher than the implied volatility derived from Deribit's BTC options, which Volmex attributes to a structural quirk in the market. Overall, IBIT's rapid rise in the options market is striking, and while it may appear to rival Deribit in scale, the two markets cater to different investor bases and are not direct substitutes.