Open interest in bitcoin options has skyrocketed recently, exceeding US$11bn on Monday, March 20 for the first time since December 2021.
Furthermore, the ratio of calls to puts is close to 2:1, certainly a bullish signal indicating far more potential buyers than sellers.
Open interest is the total amount of money on puts and calls on the options exchanges, with the overwhelming majority – more than 83% – on the Deribit options trading platform.
Bitcoin’s exceptionally strong price action amid a traditional finance mini-crisis has obviously increased the value of the bitcoins pledged to these options contracts.
Source: coinglass.com
Volatility, too, tends to drive investors to options due to their hedging characteristics.
Guillaume Lambert from Panoptic, a decentralised finance (DeFi) options protocol being launched with backing from Uniswap Labs and Coinbase (NASDAQ:COIN) Ventures, says that the demand for bitcoin options has been on a roll for a while now.
Why should we care?
In traditional financial markets, options are one of the most-traded instruments.
“Options are one of the pillars of TradFi, you use it to hedge in a unique way and you cannot have a healthy financial system without them,” said Lambert.
Yet despite the recent tick above US$10bn, open interest on bitcoin options represents only a small fraction of the bitcoin trading market.
They remain niche, even though the Chicago Mercantile Exchange, one of the largest derivatives exchanges in the world, has been offering bitcoin options contracts since 2020.
As more and more places open their doors to bitcoin options, they could be one of the primary drivers of value into the bitcoin economy in the years ahead.
Something else to consider is that US regulators remain staunchly opposed to any form of bitcoin spot exchange-traded funds (ETFs).
If their stubbornness persists, it’s only logical that the derivatives market will be well placed to benefit from investors seeking exposure to bitcoin.
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