Interest in bitcoin options appears to be skyrocketing, and why shouldn’t it be? After all, everyone – including both retail and institutional investors – are looking to bitcoin and crypto as a means of hedging their wealth as coronavirus cases spike and the Fed continues to print additional money.
Bitcoin Options Are Expanding Like Never Before
Over the past three months alone, CME Group in Chicago is a standout as far as growth goes, shooting up from $4 million to about $373 million in contracts since March. One of the issues that many corporate investors come across is that for one reason or another, they are not necessarily permitted to hold bitcoin themselves or they do not feel bitcoin is trustworthy enough given its shaky history of volatility and price swings.
Thus, bitcoin options are usually the perfect answer, as they allow these investors to get involved in the crypto space while avoiding some of the financial problems that come with the currency.
Interest in bitcoin options has ultimately led to open call interest, which appears to be quite bullish at the time of writing. Zach Le of Pirata Capital Management explained in an interview:
Analyzing OTC action suggests that a more likely scenario is that sophisticated investors are currently net short bitcoin and are using the call options to hedge their short exposure… The before-mentioned structure is a far more efficient way to essentially set a stop loss at a key resistance level, e.g. $11,000 without the fear of being stopped out by ‘wick hunting,’ which might occur with just a normal short position with a stop loss on an exchange. There is a lot of utility in these calls options given where we are in price action, how low volatility is, and how wound up the market is, but I think a lot of traders are overlooking this because derivatives are mostly seen as a speculative tool.
April saw a massive boom in bitcoin options interest, with many platforms and companies such as Bakkt, OXEx and CME Group seeing massive surges over 48-hour periods or less. One day in April alone saw as much as $86 million in bitcoin options traded on these platforms and others, leading to the highest trading figure in well over a month according to Skew data.
Why Are So Many Getting Involved?
The sentiment is that many were likely looking to get more involved in BTC as the coronavirus scare grew even larger, though the upcoming halving likely had a lot to do with it, and anticipation over what might occur grew to an all-time high given that it was only a month away.
March also saw high trading numbers for bitcoin options, with Bakkt breaking its previous trading record by more than $30 million and seeing approximately $200 million in bitcoin options traded throughout the month.