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Deribit Dominates CME and Bakkt in BTC Options Volume

Existing bitcoin exchange Deribit has bested institutional newcomers CME and Bakkt in terms of Bitcoin options trading volume at the start of 2020.

Bitcoin options recorded a strong start for 2020. On January 13, CME launched Bitcoin options on its derivatives exchange. According to data for Skew, on that day CME traded around 55 contracts worth around $2.1 million of Bitcoin, while Bakkt peaked at $1.15 million in BTC option trading volume. Despite the hype of these new regulated exchanges, Deribit still came away with 80% of the trading volume.

In 2019, Deribit was incredibly dominant with approximately 95% of all Bitcoin option trades but was expected they would lose the lion’s share to the Intercontinental Exchange backed Bakkt and CME when they entered the market. The data, however, seems to indicate that non-institutional investors still prefer to leverage unregulated exchanges and which directly contradicts the anticipated volume shift.

Source: Skew Data Analytics

Thriving Options Ecosystem

A key takeaway is that the Bitcoin options market is thriving as it rose to over $90 million in the first week of January 2020 which has increased to nearly $150 million this week.

While the performance of Deribit has shocked many, some twitter analysts were quick to highlight that additional competition will only add fuel to the overall ecosystem. Despite being competitors, the market is nascent and more exchanges ultimately mean more overall trades.

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Bakkt BTC Options Trading Falls To Zero: What Does This Mean for Mainstream Adoption?

When the Intercontinental Exchange (ICE) announced its plans to launch the Bakkt Bitcoin physically settled futures trading platform, many believed it would act as the trigger for mass institutional adoption of cryptocurrency.

Yet the platform has so far failed to show any signs of being the catalyst for the mainstream and here we are at the start of a new year and trading volumes on Bakkt for options on Bitcoin futures contracts have effectively fallen to zero.

As the majority of cryptocurrencies have been in a bullish state since the start of the year, what does the lack of the regulated and institutional platform’s BTC options mean for the market?

Ten Days with No Options

Popular analytics firm Skew posted a tweet on Tuesday, highlighting that Bakkt had not recorded any trading on Bitcoin options on its platform for ten straight days. This figure is supported by ICE’s own website which also records zero trades from Jan 20 – Jan 24. In fact, it would appear that the last trade was 20 bitcoins which occurred on Jan 17.

Bakkt’s options futures have so far performed poorly at best and they were soundly outmatched by the unregulated exchange Deribit in their opening week.

Are the Institutions Ready?

The impetus behind Bakkt was to create a safe and regulated environment where larger institutions, corporation, and investors would feel comfortable leveraging for access to the nascent crypto market.

The trading volume or lack thereof seems to indicate that these larger investors are still weary of cryptocurrency. While it would be over eager to expect mass adoption right now, the slow build is a little slower than most would have expected.

Although the platform is not currently being heavily utilized, the fact that it exists and has the backing of ICE—which also owns the New York Stock Exchange—is a significant step in bringing Bitcoin and cryptocurrency to the mainstream. At least when the big boys finally come to play, there will already be a venue ready for them.

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A Billion Dollars in Bitcoin Options Expired, Bitcoin may be Vulnerable to Violent Price Moves

A billion dollars worth of Bitcoin options are to expire in June, in the meantime, traders are debating whether this will result in higher volatility, and the direction of which Bitcoin price is headed. Traders must decide whether to take their options or leave.

Around 114,000 options from Bitcoin’s regulated and unregulated derivatives markets are set to expire, traders will need to decide whether to sell, buy, or to cast aside the options they have previously made to trade Bitcoin.

Bitcoin options, similar to other traditional options markets, is a derivative which allows the traders to purchase an asset at a pre-specified price at a later date, giving traders the opportunity to “place a bet” on the asset.

Bitcoin options recorded a strong start for 2020. Deribit, an unregulated Bitcoin derivatives exchange has seen a rise in popularity this year, as it holds $1.2 billion in Bitcoin options contracts. On January 13, CME launched Bitcoin options on its derivatives exchange. On that day CME traded around 55 contracts worth around $2.1 million of Bitcoin, while Bakkt peaked at $1.15 million in Bitcoin option trading volume. Despite the hype of these new regulated exchanges, Deribit still managed to dominate 80% of the trading volume.

CME exchange, the next biggest holder in Bitcoin options currently has $441 million in outstanding options trades, according to derivatives research firm Skew.

The expiry of options may influence market direction heading towards the Bitcoin bull or bear market during a process known as “pinning,” where options traders try to move the spot price to avoid huge losses. Currently, open interest is concentrated at $10,000 and $11,000 strike prices, at which the price levels traders buy. Strike prices expire a few months after the trader places the bet.

According to CFTC data in May, CME Group Bitcoin futures saw a record number of large open interest holders this week, at 66. Long open interest from hedge funds trading Bitcoin futures also high an eight-month high, reaching over $15 million on May 5.

What happens after the Bitcoin options expire?

If traders rollover short positions in June contracts to July and September, Bitcoin may see high volatility in prices in the coming months. A rollover means buying an underlying asset and taking the opposite position in the same contract, nearing the expiry date, and replicating the same strategy in the next closest expiry.

Bitcoin has seen a prolonged period of low volatility in the past few months, which means it could mean a high possibility of a big move in either direction. While many may not find volatility in Bitcoin price exciting, it has a positive impact on option prices; as traders usually sell options when volatility is above its lifetime average, and purchase options when volatility is low.

Although the Bitcoin options market only takes up 1% of total futures and swap volumes, there is a substantial open interest of 4,605 contracts in CME futures worth $214 million at press time expiring in June; which is yet to be seen to be rolled over to July.

Bitcoin Options Expiry Might Form New Support for a Bullish Price Surge

About $6 billion worth of Bitcoin (BTC) options will expire today and the entire cryptocurrency ecosystem is geared for its potential impact on the market.

Options contracts permit market stakeholders including investors and traders to buy a particular asset at an agreed price in the future.

In a typical Bitcoin options contract scenario, an agreement to purchase Bitcoin at $50,000 within the next months or year, may earn the investor a reasonable return if the price of the cryptocurrency surges within the time set in the contract. Unlike other related contracts such as futures, options do not have a defined provision that investors should buy the underlying assets upon expiry, and this leaves the big caveat which can swerve the price of Bitcoin in either direction from this point.

Options Expiry and Bitcoin Price

The speculations about the actions of investors whose options expire are always short-lived and insignificant when the bullish precedence is brought into full focus. The past expiration of the Chicago Mercantile Exchange (CME) options have always being a springboard for a bigger price move.

Besides today’s expiry, the last two Options/Futures expiries have a price base of $27,500, and $42,500 respectively and by simple computations, with the current options expiry price of $52,000, the next price to top the next expiry can easily be projected.

Today’s options expiry may at the very basics leave room for uncertain speculations, but if history was to repeat itself, a new price high of $65,000 or more at the next expiry date may become a reality. With the ongoing backing from corporate entities including Tesla and MicroStrategy, the flow of institutional money may help in keeping the volatility in check, and prevent the profiteering from the market bears, as Bitcoin looks to impressive long-term HODLers.

At the time of writing, Bitcoin is trading at $53,768.98, up 1.13% in the past 24 hours according to CoinMarketCap.

Bitcoin Is at an “Inflection Point,” says Soros Fund Management CIO

As Bitcoin’s price consolidation continues ever since it hit an all-time high of $61.7k earlier this month, Soros Fund Management CIO Dawn Fitzpatrick believes that the leading cryptocurrency is at an inflection point.

As reported by Bloomberg Crypto:

“Dawn Fitzpatrick, head of the legendary asset management shop, sees an ‘inflection point’ for Bitcoin and other cryptocurrencies.”

Her sentiments come at a time when the Bitcoin price is hovering around the $53,746 price at the time of writing, according to CoinMarketCap. BTC traders are, however, showing their resilience as they are continuously buying the dip.

IntoThe Block has revealed that the next significant support level lies between $49.1k and $50.6k because 328,000 Bitcoins were bought at this range. The digital asset firm explained:

“The IOMAP indicator reveals that the next big level of support is between $49.1k and $50.6k, where 685k addresses previously bought 328k BTC. If this range fails to sustain, the 781K addresses previously buying between $46k and $47.5k will provide support.”

IntoTheBlock acknowledged that Bitcoin could dip further to the $46-47.5k price level if this does not hold

Bitcoin options worth $6 billion scheduled to expire

BTC options valued at $6 billion are expected to expire on March 26, which may trigger a massive price volatility. Some traders anticipate the price will sink to the $44k level based on the ‘max pain’ theory, which indicates that influential and institutional players might be inclined to push the price in their favoured direction.

Nevertheless, with the expiry of these options, a new support level may be formed, and this could trigger a bullish price surge. These sentiments are echoed by crypto analyst Michael van de Poppe who believes that the path to $68k and $83k is still open.

He acknowledged:

“Most likely, Bitcoin hit support, and we’re going to move sideways for a while, just after halving 2020. Next to that, the path to $68,000 and $83,000 is open. Finally, the bearish divergence is invalid so far, and we’ve got a hidden bullish divergence.”

Time will tell how Bitcoin shapes up based on the expiry of these options.

$100,000 Forecasted as the Largest Strike Price for Bitcoin Options this Year, Analysis Predict

Some analysts had predicted that $100,000 was the price to watch in the Bitcoin (BTC) market before the year closes. Therefore, it does not come as a surprise that it’s the largest strike price for BTC options with an open interest (OI) of $500 million.

Market insight provider Glassnode explained:

“For options expiring 31-December-2021, we can see a huge dominance of call options. The Bitcoin bulls are betting big, with large open interest clusters at strike prices of: – $100K (OI = $500M) – $120K (OI = $420M) – $200K (OI = $380M).”

The level of open interest in the BTC options market has been going through the roof because it stands at $12.6 billion, which is a stone’s throw away from the all-time high (ATH) level of $14 billion.

Open interest rises with price, which shows their strong correlation.

Since reaching historic highs of $69,000 earlier this month, Bitcoin has been witnessed a sharp correction by nosediving below the psychological price of $60K. The leading cryptocurrency was hovering around $59,776 during intraday trading, according to CoinMarketCap. Meanwhile, Bitcoin balances on exchanges continue to diminish.

This correlates with the fact that Bitcoin addresses holding for more than a year recently reached a record high with 10.15 million BTC.

Therefore, investors remain optimistic about the Bitcoin market in the long term because holding is one of the favoured strategies.

For instance, long-term BTC holders are among the largest beneficiaries with a lower cost basis of $17,750.

On the other hand, transaction volume in the Bitcoin market has been rising. On-chain analyst Jan Wuestenfeld stated:

“More than 12 million Bitcoin in terms of transaction volume moved on-chain on Nov 16. The last time a higher on-chain transaction volume has been recorded was in August 2019 and then in March 2016. So this is very exceptional.”

Whether the strike price of $100,000 will be achieved before the year closes remains to be seen.