Bitcoin Options Growth Outpaces Futures, Swaps

Bitcoin options trading is growing faster than the futures and swaps market, according to data from Skew.

Measured by the ratio of aggregate open interest in the bitcoin options market to open interest for bitcoin futures and swaps, a clear upward trend is observable from January 2020 to date.

A historical trend of a higher ratio signals a rate of growth in options open interest that exceeds growth in that of bitcoin futures and swaps. Open interest is defined as the outstanding contracts, measured here in dollars.

Although the open interest in bitcoin options is growing and is now roughly 35% that of futures and swaps, it still has a long way to go compared to traditional financial markets where options open interest and trading volumes are “generally a multiple of futures,” said Su Zhu, co-founder of cryptocurrency hedge fund Three Arrows Capital.

“It makes sense for bitcoin to go a similar route as liquidity improves and institutional players come in,” he added.

Likewise, the dollar value of options trading volume is a tiny fraction of futures even as March saw volumes for bitcoin options and futures hit yearly highs, according to Skew. Aggregate options volume reached $294 million, while futures volume passed $45.5 billion. Options volume was about $220 million in May.

Growth in options trading has been helped by OKEx and CME Group launching bitcoin options in December 2019 and January 2020, respectively. Still, Panama-based exchange Deribit still supports roughly 85% of daily volume, according to Skew.

A healthy market for options and other products designed for volatility-based trading adds “a lot of things that you just fundamentally can't get without nonlinear derivatives,” said Sam Bankman-Fried, CEO at cryptocurrency derivatives exchange FTX.

For example, some of the new, exotic volatility trading products launched by FTX will likely benefit from options market growth as more traders contribute to volatility-based price discovery. In short, growth in options trading “adds a lot to the space,” Bankman-Fried said.