A notable development occurred on Friday, highlighting the accelerating institutionalization of the bitcoin market, which has long been driven by individual investors. This shift 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 bridged the gap with Deribit's bitcoin options market, which has been in operation since 2016. On Friday, the open interest in IBIT options contracts on Nasdaq 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 is now on par with the offshore market.
The rise of a booming, regulated market in the US could 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 grant 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 additional 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 above the ETF's current market price. Although the two markets now match in scale, they differ in shape, 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 approximately $106,000 in BTC terms. The average delta is slightly lower onshore, consistent with onshore flow being dominated by retail upside speculation and systematic call overwriting programs. Put positioning is largely aligned across venues, with open interest concentrated around the $63,500 strike.
ETF holders tend to be more patient, with options expiries averaging 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, leading to a demand for put options that keeps IBIT's implied volatility elevated. Overall, IBIT's rapid rise in the options market is striking, and while it now rivals Deribit in scale, the two are not direct substitutes, catering to different investor bases.
According to Fariq, this development expands the market, ultimately benefiting the broader ecosystem and venues like Deribit.