A notable development occurred on Friday, signaling the accelerating institutionalization of the bitcoin market, which has been driven by individual investors for years. This is because options linked to BlackRock's bitcoin exchange-traded fund (ETF), IBIT, have grown slightly larger on Nasdaq than total bitcoin options trading on the offshore giant Deribit. Notably, IBIT options have closed the gap with Deribit's bitcoin options market in just two years, despite Deribit 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 milestone indicates that the regulated, institutional-grade bitcoin investment and derivatives infrastructure in the US is no longer secondary to 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. Deribit's Global Head of Retail Sales and Business, Sidrah Fariq, views IBIT's rise as a net positive for the broader crypto derivatives ecosystem, providing US retail 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 additional income on coin or ETF holdings. One preferred income-generating strategy involving IBIT ETF and IBIT options is the covered call strategy, allowing investors to profit from BTC's implied volatility.
The two markets, though now matching in scale, are positioned differently, 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.
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 having expiry dates and IBIT options being approximately two months longer-dated on an OI-weighted basis. 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.
Overall, IBIT's rapid rise in the options market is striking, rivaling Deribit in scale, but the two are not direct substitutes, as IBIT options cater to regulated, onshore investors, while Deribit remains the go-to place for global investors.