A significant development occurred on Friday, highlighting the accelerating institutionalization of the bitcoin market, which has been driven by individual investors for years. This is evident in the fact that options linked to BlackRock's bitcoin exchange-traded fund (ETF), IBIT, have surpassed total bitcoin options trading on the offshore platform Deribit in terms of open interest.
Notably, IBIT options have closed the gap with Deribit's bitcoin options market in just two years, despite Deribit's head start since 2016. On Friday, the dollar value of open IBIT options contracts on Nasdaq reached $27.61 billion, slightly higher than Deribit's $26.90 billion, according to data from Volmex. This milestone indicates that the US's regulated, institutional-grade bitcoin investment and derivatives infrastructure is now on par with the offshore market, potentially emboldening more Wall Street institutions to explore digital assets and 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 grant the purchaser the right to buy or sell an underlying asset at a predetermined price, with call options representing a bullish bet and put options representing a bearish bet. Analysts use open interest to measure 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, although now matching in scale, reveal different trader sentiments, with IBIT call options concentrated at higher strike levels and Deribit options positioned more conservatively.
According to Volmex, IBIT options are approximately two months longer-dated than Deribit options, suggesting that ETF holders are more patient and have a longer investment horizon. Lastly, IBIT's implied volatility is higher than Deribit's, attributed to a structural quirk where ETF holders cannot easily short bitcoin directly and instead buy put options as a hedge, keeping IBIT's implied volatility elevated.
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 expanding the market as a whole.