This year’s massive rebound in cryptocurrencies is firing up the digital-asset derivatives market.
Crypto options and futures are seeing a surge in demand from traditional institutional investors making bets ahead of the deadline for US regulators to approve or reject exchange-traded funds that invest directly in Bitcoin. Trading volume for Bitcoin options has reached an all-time-high, according to data compiled by The Block. Deribit, the largest crypto-options exchange, is poised for its biggest-ever quarterly expiry on Friday.
Options with a notional value of $11 billion expiring Friday are comprised of $7.7 billion in Bitcoin contracts and $3.5 billion in Ether options. While the largest-ever options expiry could result in above-average trading activity, it likely will not have a huge impact on prices in the spot market, according to Luuk Strijers, Deribit’s chief commercial officer.
“We see clients rolling positions to 2024 expiries and expect to see more of that closer to the expiry as well as afterward,” Strijers said. “After the expiry, all eyes and trading activity will be focused on the upcoming ETF decision.”
The crypto market has rallied strongly this year, with Bitcoin up almost 160%, after a series of industry scandals sent prices of digital assets plunging in 2022. The recovery was in part driven by optimism that spot Bitcoin ETFs will be approved, attracting a wider range of investors to the asset class. Options give the purchaser of the contracts the right to buy or sell the underlying asset at a specific price within a set time period.
Trading volumes in both spot Bitcoin and derivatives have seen an uptick since traditional asset managers such as BlackRock Inc. filed their applications for such ETFs.
“Amongst our own options volumes, we’ve seen increased participation from crossover macro accounts — large traditional asset managers who are allocating a small percentage to crypto — and crypto-focused hedge funds,” said Ryan Kim, head of derivatives at digital-asset prime brokerage FalconX. Perpeptual futures, a popular way for crypto traders to leverage their bets, are trading at a significant premium in price to spot, Kim said, another sign of growing demand.
This article was provided by Bloomberg News.
