The options market on Bitcoin has surpassed that of futures by Open Interest (OI).
In fact, according to CoinGlass data, against a total OI of about $16.2 billion across all BTC price futures markets, that of options has risen to $17.5 billion.
Summary
The boom in options on Bitcoin
The CoinGlass chart shows that at the beginning of the year the total Open Interest in options on Bitcoin had fallen below $3.5 billion, having instead risen as high as $14.5 billion in October 2021 at the height of the bull run.
By January 2022, however, it had already collapsed below $7 billion, and by July it had also fallen below $5 billion.
However, after plummeting to $3.5 billion, by the end of January 2023 it had already climbed back up to $7 billion, and then in March it exceeded $14.5 billion again.
So this is a market that has really boomed in 2023, touching new highs similar to those of 2021 but in the absence of a real bullrun.
Last year’s bear-market had suppressed it quite a bit, but this year it not only recovered but ended up breaking all previous records, even those of the 2021 bull run.
What’s more, from March onward the OI on BTC options has always remained above $10 billion, and it is probably no coincidence that this happened right after the failure of some major U.S. banks.
A more sophisticated market
The hypothesis behind this boom is trivially that the market is becoming more sophisticated.
If until 2020 the Bitcoin market was so small and trivial that it had not yet even attracted large institutional investors, there seems to have been a real breakthrough in 2023.
This is also evidenced by the entry of a traditional giant like BlackRock with its application to issue in the US one of the first spot Bitcoin ETFs in US history.Â
It must be said that the futures and options markets are those more suited to speculators than to real investors, but it is known that financial markets are literally dominated by speculation.
The fact that instruments for speculating on BTC price movements now manage to attract more capital than spot markets for medium- to long-term investors means nothing more than that this market is maturing by increasingly resembling that of, for example, equities.
According to the commercial director of Deribit, (the leading crypto options exchange), Luuk Strijers, the increased activity in the options market is precisely a clear sign of increased sophistication of this market.
The outpacing of the OI of options over that of futures would indicate a growing preference for options as tools for strategic positioning, hedging, or accessing the recent increase in implied volatility.
Options
In fact, options are not only used to open real bets on changes in market prices, but also to mitigate risk.
They are in fact derivative contracts that give the buyer the right, but not the obligation, to buy or sell an asset, at a predetermined price, and by a specific date.
So since the person who buys them has the freedom to decide whether or not to exploit them, they turn out to be perfect for mitigating risk, since they can only be used when there are problems and perhaps not used when everything goes as planned.
Instead, in some cases they are simply used to hope to amplify eventual returns.
Typically, however, the put, or sell, ones are used by those who have opened bullish positions to protect themselves from potential downturns, since then they give them the right to sell at higher prices. Conversely, on the other hand, those call, or buying, ones are generally used by those who are betting on possible declines to protect themselves from potential upturns, since in that case they give them the right to buy at lower prices.
The use of options is by no means trivial, so it is recommended that they be used only by professional or very experienced investors and speculators in this regard.
The main advantage over futures is precisely the fact that they do not oblige the user to buy or sell, but once purchased they can be both used and unused.
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