A notable development occurred on Friday, indicating the rapid growth of institutional involvement in the bitcoin market, which has long been driven by individual investors. This 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 the offshore platform Deribit in terms of open interest. It is particularly striking that IBIT options have closed the gap with Deribit's bitcoin options market in just two years, despite Deribit's head start of operating since 2016.
On Friday, the open interest in IBIT options contracts on Nasdaq reached $27.61 billion, slightly higher than 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 is now on par with the offshore market. Moreover, 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 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, though now matching in scale, are positioned differently, revealing distinct trader sentiments. According to Volmex, the bulk of open interest in IBIT call options is concentrated at strike levels equivalent to bitcoin trading around $109,709, roughly 41% above the current price. In contrast, Deribit options positioning is slightly more conservative, with call open interest clustered around levels equivalent to roughly $106,000 in BTC terms.
The average expiry dates for IBIT options are approximately two months longer-dated than those of Deribit, suggesting that IBIT options are preferred by longer-horizon ETF investors. 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. Overall, IBIT's rapid rise in the options market is striking, and while it may rival Deribit in scale, the two are not direct substitutes, catering to different investor bases and preferences.