A notable development occurred on Friday, indicating the rapid growth of institutional involvement in the bitcoin market, an area previously dominated by individual investors. This shift is evident in the fact that options linked to BlackRock's bitcoin exchange-traded fund (ETF), IBIT, have surpassed the total bitcoin options trading on Deribit, a major offshore player, in terms of open interest on Nasdaq.
Notably, IBIT options have bridged 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 reached $27.61 billion, slightly exceeding 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 has caught up with the offshore market, potentially encouraging more Wall Street institutions to explore digital assets and contributing 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 on 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 from 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.
While the two markets now match in scale, they differ in positioning, revealing insights into 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. In contrast, Deribit options positioning is slightly more conservative, with call open interest clustered around levels equivalent to approximately $106,000 in BTC terms.
Furthermore, analysis of activity across both markets suggests that IBIT options are approximately two months longer-dated on an OI-weighted basis, indicating 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 rivals Deribit in scale, the two are not direct substitutes, catering to different investor bases.
As Fariq noted, this development expands the market, ultimately benefiting the broader ecosystem and venues like Deribit.