A notable development occurred on Friday, marking a significant acceleration in the institutionalization of the bitcoin market, which has long been driven by individual investors. This is evident in the growth of options linked to BlackRock's bitcoin exchange-traded fund (ETF), IBIT, which have become slightly larger than the total bitcoin options trading on the offshore platform Deribit.
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, 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 indicates 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 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 is driving 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 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 distinct trader sentiments.
According to Volmex, the majority 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 are preferred by investors with a longer-term horizon.
Lastly, IBIT's implied volatility is higher than that derived from Deribit's BTC options, which Volmex attributes to the demand for put options among ETF holders who cannot easily short bitcoin directly. Overall, IBIT's rapid rise in the options market is striking, and it 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 become comfortable trading options via IBIT, it ultimately benefits the broader ecosystem, and venues like Deribit benefit from increased sophistication and flow,' Fariq said.