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Bitcoin Options Action Swells On Deribit After Introduction of $200K Options Strike

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Bitcoin’s wild ride has not just catapulted the spot market but has propelled fresh highs on the derivatives space, as well. Bitcoin derivatives markets have been witnessed a significant demand in recent months simultaneously as the spot markets jumped to new peaks.

After a few days of dwindling figures, the parabolic upside breaching $34K has spurred newfound optimism among the option traders. In the latest development, the traders of the bitcoin options exchange, Deribit recorded a 24-hours exchange trading volume of a whopping $4.4 billion with more than $1.98 billion in notional for the first time ever.

In addition, the BTC options open interest [OI] surged to an all-time high of $8 billion. Deribit remains at the top position in terms of the aggregate BTC options open interest. This was followed by open interest from crypto platforms such as Okex, Bit.com, CME Group, and Ledgerx respectively.

Coinciding with the market-wide bullish sentiment was another crucial announcement from the platform. The options traders on Deribit can now bet on a potential rally all the way to $200,000 by late December 2021. This replaced the $160,000 option as the highest traders can bet Bitcoin would surge to.

This news comes a little over a week after Deribit introduced call and put options at the $100,000 strike price expiring on the 24th of September, 2021. Interestingly, when the said options went live, the underlying crypto-asset was in the middle of a massive rally blasting past the coveted level of $20k and setting a then-record high of a new territory close to the $24k.

As the prices continued to soar, Deribit then announced the launch of both $120k and $140k strikes within a short span of time. The exchange had earlier explained its decision in the following tweet,

“Our introduction policy is adding strikes up to delta 10”

The latest bull run witnessed a lot of new investors foraying the market amid the uncertainty that scourge the traditional financial realm due to the ongoing pandemic. These entities were now seeking to hedge their bets against the industry through derivatives of underlying assets like Bitcoin and Ethereum. This was reflected in the speed at which the crypto derivatives market has been growing in the midst of Bitcoin’s stunning run into unchartered territories.

Over $37.8 Billion Turnover Registered by Bitcoin, Ethereum Options

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During the month of November, the derivatives platform of cryptocurrency heralded towards news heights in the industry. Firstly, CME’s Open-Interest reached an Open-Interest near $1 billion and it completely opened the institutional path in Bitcoin’s market.

With institutional interest reaching a commendable high, Deribit’s recent institutional newsletter suggested a new monthly notional turnover record of over $14.3 billion; a new daily BTC options record. Over 25,000 Bitcoin contracts were registered as the platform’s open-interest ranged over $4.5 billion.

Bitcoin Volume Highs and price nears New ATH

Screenshot 2020-12-01 at 16.01.32

Bitcoin’s price has played an important role in the OI splurge on Deribit but Ethereum Options were able to draw significant attention as well. Over the month of November alone, Bitcoin’s value improved by 40% but Ethereum exhibited returns close to 56%. However, the sustainability of this rally was much higher in comparison to 2017.

In terms of number, Total turnover in USD was close to $37.8 billion in November, which was a whopping 123% above October 2020. The report added,

“750,123BTC options contracts were traded in November 2020, up 77% versus October 2020. 3,270,065ETH options contracts were traded in November 2020, up 95% versus October 2020.”

Increasing Volatility promoted interest, but dropping atm?

Screenshot 2020-12-01 at 15.29.31

While November clocked in the best Option Contracts volume for BTC and ETH on Deribit, now both the set of digital assets were leading towards its largest expiry. Close to 31% of Bitcoin OI will expire before 2021, and for Ethereum the value was above 44%.

This particular sentiment may lead to the sudden decline of expected volatility. As reported, volatility nearly doubled in November(reaching 84% from 49%), the recent at the money volatility structure exhibited a drop.

Screenshot 2020-12-01 at 15.30.16

Can the price drop with respect to dropping OI?

Temporarily yes. The Open-Interest execution would indicate that people will be cashing on their profits or losses over the course of December and short-term high liquidations may cause a little stir in the valuation.

However, the price of Bitcoin has been extremely stable during bouts of liquidation in 2020, as selling pressure has always been absorbed by rising buying pressure.

Hence, the price impact can be expected to be minimal, as Bitcoin and the collective market entertains another rally early next year.

Over $4.3 Billion in Bitcoin, Ethereum Options Was Clocked in July 2020

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The last 7 days in July was extremely positive for the price values of Bitcoin and Ethereum, as both virtual currencies improved by 23 and 45 per cent respectively. Ethereum has moved above $400 to its highest point in 2020 and the overall improvement in the ecosystem has had an impact on Deribit’s options market.

Deribit released its Institutional Newsletter recently and the derivatives exchange expressed that July was one of the best months in 2020 from an options volume.

bitcoin and ethereum

According to the newsletter, the total options volume resulted during the previous month eclipsed everything in the past, as the total turnover clocked in at a whopping $4.3 billion. It was a massive 52 percent jumped from June 2020 for Deribit.

Official numbers indicated that 380,804 BTC options contracts were traded, rising by 44% versus June 2020 and for Ethereum options, the number clocked in was around 1,878,361 contracts; spiking by 41% since June 2020.

The report further added,

“The total Options OI on Deribit was up 37% vs. June, with an impressive 90% growth in ETH. However, BTC growth did not slow down either, increasing by 31% vs. Q2 expiry. Altogether a new Options OI record was reached with more than USD 2.01 billion worth of contracts open right before the expiry.”

In terms of total turnover from USD development, over $10.7 billion in July was witnessed jumping by 17% from June 2020.

The relative improvement of the derivatives market is a prime example of the improving interest in the crypto market. Traditional traders and accredited investors were getting drawn towards investment products involving Bitcoin and Ethereum, in order to gain substantial exposure.

However, Bakkt’s Bitcoin exchange did not have the same fruitful experience in July 2020.

Bakkt Bitcoin Contracts dropped from 221 to 58

According to a recent Arcane Research tweet, the number of Bakkt Bitcoin futures contracts that were held in July crashed about 75% in July, which was the lowest amount recorded throughout 2020.

bakkt btc

The above chart illustrated that the number of Bakkt bitcoin delivery contracts declined from 221 in June to a lowly 58 in July. June was extremely positive for Bakkt hence this comes across as a major setback for the ICE backed exchange.

bakkt bitcoin futures

However, in spite of misfortunes the previous month, It is evident from Skew data that Bakkt’s Open-Interest is currently at an all-time high range of $25 million, which suggested that institutional investors were continuing to flood in the regulated exchange.

Bitcoin Bakkt Futures Settles 11,706 BTC; CME Reaches an OI of $726 million

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The domino effect in play for Bitcoin seems to be in full throttle.

After bitcoin surpassed its yearly high in February, the largest digital asset created a ripple effect in multiple directions. With on-chain fundamentals improving in the charts, Bitcoin’s derivatives market was incurring major change as well.

CME and Bakkt have been two of the most important exchanges for Bitcoin that have promoted the involvement of institutional investors in the digital asset space.

Many believed that Bitcoin’s next major bullish rally would emerge from the participation of accredited investors, and according to recent developments, things are likely to move in that direction at the moment.

skew bakkt bitcoin futures total open interest volumes

According to Skew analysis, Bakkt futures reportedly recorded its highest BTC physically-settled contracts, amassing a whopping 11,705 futures on 29th July. The futures contracts were valued at over $125 million. The platform that is backed by Intercontinental Exchange, announced on Twitter,

Now alongside Bakkt, CME was registering a heightened level of activity on its platform as well.

According to data, the Open-Interest in CME cash-settled Bitcoin futures surpassed its previous all-time high with a massive surge of up to $724 million.

skew cme bitcoin futures total open interest volumes

At illustrated in the above chart, the OI on the CME platform witnessed a huge spike over the past 48-hours which led to the exchange passing its previous high of  $530 million.

CME’s high open-interest is currently accompanied by an average daily volume of $308 million as compared to $285 million witnessed in the month of June. Although, the daily volume had spiked up to $1.7 billion in the charts during the Open-Interest rally.

Implied Volatility spikes after consistent lows

skew btcusd iv vs rv

One of the surprising trends consistent throughout the year has been Bitcoin’s volatility. Despite a high level of activity in February, April-May, and now in July, volatility has been under the radar. Bitcoin’s volatility has been so low that other traditional stocks appeared to be more volatile in nature than Bitcoin.

However, the recent spike is creating a bit of a change. Bitcoin’s Implied and Realized Volatility, both underwent a minor spike during the recent rally. Both the volatility levels had recently registered their yearly-low at 3.1% and 3.0% respectively, so it will probably take a while before it reaches previous high levels.

Low volatility levels are a positive sign from a long-term perspective as they indicate the maturity of an asset.