A notable development occurred on Friday, marking the accelerating institutionalization of the bitcoin market, which has been driven by individual investors for years. This milestone was achieved as options linked to BlackRock's bitcoin exchange-traded fund (ETF), IBIT, grew slightly larger on Nasdaq than total bitcoin options trading on the offshore platform Deribit. In just two years, IBIT options have closed the gap with Deribit's bitcoin options market, which has been operating since 2016.
On Friday, the dollar value of open IBIT options contracts on Nasdaq was $27.61 billion, surpassing the $26.90 billion in Deribit's bitcoin options. This indicates that the regulated, institutional-grade bitcoin investment and derivatives infrastructure in the US is no longer secondary to 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, providing US retail investors with direct access to regulated leverage and options exposure.
Options are derivative contracts that give 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 income on coin or ETF holdings. The preferred income-generating strategy involving IBIT ETF and IBIT options is the covered call strategy, allowing 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 trader sentiment. According to Volmex, the bulk of open interest in IBIT call options is concentrated at strike levels equivalent to bitcoin trading around $109,709, or roughly 41% above the current price of $77,400.
Positioning in Deribit options is also concentrated on the higher side but is slightly more conservative. ETF holders tend to be more patient, with options expiries preferred in IBIT being approximately two months longer-dated than those on Deribit. Lastly, IBIT's implied volatility is higher than the implied volatility derived from Deribit's BTC options, attributed to a structural quirk where ETF holders cannot easily short bitcoin directly, leading to increased demand for put options. Overall, IBIT's rapid rise in the options market is striking, and it now appears to rival Deribit in scale, although the two are not direct substitutes, with IBIT options catering to regulated, onshore investors and Deribit remaining the go-to platform for global investors.