A notable development occurred on Friday, signifying the accelerating institutionalization of the bitcoin market, which has been driven by individual investors for years. This is evident in the growth of options linked to BlackRock's bitcoin exchange-traded fund (ETF), IBIT, which have become slightly larger on Nasdaq than the total bitcoin options trading on the offshore platform Deribit. In just two years, IBIT options have closed the gap with Deribit's bitcoin options market, which has been in operation since 2016. On Friday, the dollar value of open IBIT options contracts on Nasdaq, known as open interest, reached $27.61 billion, surpassing the $26.90 billion in Deribit's bitcoin options, according to data from Volmex.
This milestone indicates that the regulated, institutional-grade bitcoin investment and derivatives infrastructure in the US is now on par with the offshore market. The rise of IBIT options is expected to encourage more Wall Street institutions to explore digital assets, 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 give the purchaser the right to buy or sell an underlying asset at a predetermined price at a later date.
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. The 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, IBIT and Deribit, now match each other in scale but differ in positioning, 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. The average expiry date for IBIT options is approximately two months longer than Deribit, suggesting that IBIT options are preferred by longer-horizon ETF investors.
Lastly, IBIT's implied volatility is higher than Deribit's, attributed to a structural quirk where ETF holders cannot easily short bitcoin directly, leading to increased demand for put options. 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.