A significant development occurred on Friday, marking the accelerating institutionalization of the bitcoin market, which has been driven by individual investors for years. 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 Deribit, a major offshore player. 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 open interest in IBIT options contracts on Nasdaq reached $27.61 billion, slightly higher than Deribit's $26.90 billion, according to data from Volmex.
This milestone signifies that the US-based, regulated bitcoin investment and derivatives infrastructure is no longer secondary to 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, providing US retail investors with direct access to regulated leverage and options exposure. 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 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, though similar in scale, 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, indicating expectations of a rally to $106,000.
The average expiry dates for IBIT options are approximately two months longer-dated than those on Deribit, suggesting that IBIT options cater to longer-horizon investors. Lastly, IBIT's implied volatility is higher than Deribit's, which Volmex attributes to the demand for put options as a hedge by ETF holders who cannot easily short bitcoin directly. Overall, IBIT's rapid rise in the options market is striking, and while it may rival Deribit in scale, the two are not direct substitutes, as IBIT options primarily serve regulated, onshore investors accessing bitcoin exposure through traditional channels, while Deribit remains a go-to destination for global investors.