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 due to the fact that options linked to BlackRock's bitcoin exchange-traded fund (ETF), IBIT, have grown larger than the total bitcoin options trading on the offshore platform Deribit. 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 open interest in IBIT options contracts on Nasdaq reached $27.61 billion, surpassing 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. 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 positive development for the broader crypto derivatives ecosystem. 'US retail investors can access regulated leverage and options exposure through IBIT options, which is further supported by the current macro environment of supply chain uncertainty, energy shocks, and geopolitical risks, driving demand for hedging and options strategies,' Fariq stated.
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 income on coin/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 insights into 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, Deribit options positioning is more conservative, with call open interest clustered around levels equivalent to roughly $106,000 in BTC terms.
'Onshore call OI is concentrated roughly 4 percentage points further out-of-the-money than offshore, and the onshore average delta is slightly lower, consistent with onshore flow being dominated by retail upside speculation and systematic call overwriting programs,' Volmex noted. Put positioning is largely aligned across venues, with open interest concentrated around the $63,500 strike. ETF holders tend to be more patient, with IBIT options expiries averaging two months longer than those on Deribit. 'IBIT options are approximately two months longer-dated on an OI-weighted basis, reflecting the underlying holder base, with longer-horizon ETF investors onshore versus more tactical positioning offshore,' Volmex observed.
Lastly, IBIT's implied volatility is higher than Deribit's, which Volmex attributes to the structural quirk of ETF holders being unable to easily short bitcoin directly, leading to increased demand for put options. Overall, IBIT's rapid rise in the options market is notable, and while it may rival Deribit in scale, the two are not direct substitutes, as IBIT options primarily cater to regulated, onshore investors, while Deribit remains the go-to platform for global investors. 'I don't see this as competition; rather, it expands the market.
As more participants become comfortable trading options via IBIT, it ultimately benefits the broader ecosystem, including venues like Deribit,' Fariq said.