A notable development occurred on Friday, indicating the accelerating institutionalization of the bitcoin market, which has been driven by individual investors for years. This is because options linked to BlackRock's bitcoin exchange-traded fund (ETF), IBIT, have surpassed the total bitcoin options trading on the offshore platform Deribit in terms of open interest. It is striking that 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 was $27.61 billion, slightly higher than 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. 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't 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 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 use options to hedge existing positions, speculate on price direction, and generate additional 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, are positioned differently, revealing trader sentiment in each. According to Volmex, the bulk of open interest in IBIT call options points to 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 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. All things considered, IBIT's rapid rise in the options market is striking and now appears to rival Deribit in scale. However, the two are not direct substitutes, as IBIT options primarily cater to regulated, onshore investors, while Deribit remains the go-to platform for global investors. "I don't see this as competition.
If anything, it expands the market. As more participants get comfortable trading options via IBIT, it ultimately feeds into the broader ecosystem, and venues like Deribit benefit from increased sophistication and flow," Fariq said.