A notable 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 become slightly larger on Nasdaq than 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, 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 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 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. Although the two markets now match each other in scale, they are positioned differently, revealing distinct trader sentiments.
According to Volmex, the majority 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, Deribit options positioning is bullish but more measured, suggesting expectations of a rally to $106,000. The two markets also differ in their expiry dates, with IBIT options having longer-dated expiries, suggesting that ETF holders are more patient. Lastly, IBIT's implied volatility is higher than Deribit's, which Volmex attributes to the demand for put options from 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 cater to regulated, onshore investors.