A notable development occurred on Friday, highlighting the rapid 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 surpassed the 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 in operation since 2016.
On Friday, the dollar value of open IBIT options contracts on Nasdaq, also known as open interest, reached $27.61 billion, slightly higher than the $26.90 billion in Deribit's bitcoin options. This milestone indicates that the regulated, institutional-grade bitcoin investment and derivatives infrastructure in the US is no longer secondary to the offshore market. The rise of IBIT options is expected to embolden 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 growth 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.
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 simultaneously holding the ETF and shorting IBIT calls at levels well above the ETF's current market price. The two markets, though similar in scale, are positioned differently, revealing distinct 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, positioning in Deribit options is more conservative, with call open interest clustered around levels equivalent to roughly $106,000 in BTC terms.
The expiry dates of options contracts also vary between the two markets, with IBIT options having an average expiry date two months longer than Deribit options. Lastly, IBIT's implied volatility is higher than Deribit's, attributed to the demand for put options from ETF holders who cannot easily short bitcoin directly.
The rapid rise of IBIT options is striking, and while it may rival Deribit in scale, the two markets cater to different investor bases, with IBIT options primarily serving regulated, onshore investors and Deribit remaining the go-to platform for global investors.