Bitcoin Options Market Reaches $80 Billion, Influences Spot Prices
The Bitcoin options market has expanded significantly, now impacting BTC's price according to FalconX.
- Open interest in BTC options reached nearly $80 billion, up from $8 billion at the start of the year.
- This growth parallels Bitcoin's futures market, altering how traders manage risk and express market views.
- Options activity is now crucial for anticipating price moves, unlike spot trades which reflect current prices.
Main drivers of this trend:
- Deribit: Favored by crypto-native traders with short-dated options and ongoing risk management.
- BlackRock’s iShares Bitcoin Trust (IBIT): Preferred by institutional investors for longer-term options, often used in hedging and yield-enhancing strategies.
Trading profiles differ:
- Hedge funds prefer Deribit's frequent trading cycles.
- Pension funds use IBIT for long-term exposure with limited downside risk.
Put/call ratios show strategy biases:
- Deribit: Ratio around 0.5–0.6, indicating balanced puts and calls.
- IBIT: Ratio around 0.3, showing a bullish tilt.
Volatility insights:
- Implied volatility has decreased, yet the spread between implied and realized volatility remains, offering typical premiums.
- A macro shock or regulatory change could disrupt this balance quickly.
Divergence in volatility between BTC and ETH:
- ETH maintains higher implied volatility due to staking and DeFi flows.
- BTC sees lower volatility from miners and large holders selling options for income.
Conclusion: Crypto options have become integral to understanding and predicting market movements, watched closely by traders and risk managers using Deribit for short-term risks and IBIT for long-term positions.