A significant development occurred on Friday, marking the acceleration of institutional involvement in the bitcoin market, which has been driven by individual investors for years. This is due to the growth of options, or hedging instruments, linked to BlackRock's bitcoin exchange-traded fund (ETF), IBIT, which have become slightly larger on Nasdaq than 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, surpassing the $26.90 billion in Deribit's bitcoin options, according to data from Volmex. This milestone signifies that the regulated, institutional-grade bitcoin investment and derivatives infrastructure in the US is now on par with the offshore market.
Furthermore, a thriving, regulated market in the US could encourage more Wall Street institutions to explore digital assets, ultimately leading to more mature price discovery. Sidrah Fariq, Deribit's Global Head of Retail Sales and Business, views IBIT's rise as a positive development for the broader crypto derivatives ecosystem. 'US retail investors cannot easily access platforms like Deribit, so iShares Bitcoin Trust (IBIT) options provide them with direct access to regulated leverage and options exposure. This is further supported by the current macro environment, which drives demand for hedging and options strategies,' Fariq explained.
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 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. The two markets, although now matching in scale, are positioned differently, revealing insights into trader sentiment.
According to Volmex, the bulk of open interest in IBIT call options indicates 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 slightly measured, suggesting expectations of a rally to $106,000. The average expiry dates for IBIT options are preferred in October 2026, while August expiries dominate on Deribit, indicating 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. As IBIT options primarily cater to regulated, onshore investors, they are not direct substitutes for Deribit, which remains the go-to platform for global investors.
'I don't see this as competition. If anything, it expands the market. As more participants become comfortable trading options via IBIT, it ultimately benefits the broader ecosystem, and venues like Deribit benefit from increased sophistication and flow,' Fariq stated.