The cryptocurrency industry has witnessed significant growth in its derivatives sector, with options trading emerging as a particularly exciting development. Platforms like Deribit, established in 2016, have been instrumental in providing access to standard options—call and put options—for digital assets. The evolution of liquid futures markets has further facilitated the creation of sophisticated products, including perpetual futures and fixed-term futures, enabling larger-scale options trading.
Options contracts are beneficial for the cryptocurrency ecosystem because they allow traders to hedge against sudden price fluctuations. Without delving too deeply into pricing mechanics, it's essential to understand that accurately valuing options requires a fair estimate of the underlying asset's forward price, typically derived from futures contracts. The development of futures markets with rolling expiries has made it possible to introduce options with multiple strike prices and expiration dates, priced with greater accuracy.
This analysis, part one of a two-part series, examines the current state of emerging options and futures markets, exploring their challenges, biases, and potential areas for growth. We focus specifically on Bitcoin instruments—both futures and options—traded on Deribit during 2019. All data and assumptions are based solely on this dataset.
Key Insights from Deribit's 2019 Data
- Steady Trading Volume: Bitcoin options trading demonstrated consistent activity, with an average daily notional value of $25 million.
- Disproportionate Impact: While Bitcoin options accounted for only 1.4% of total trade volume in terms of USD-equivalent notional value, they represented 31.88% of all derivatives trades. This discrepancy is due to the larger median trade size for options (1 BTC) compared to futures (80 USD).
- Growing Futures Importance: The ratio of quarterly expiring futures volume to perpetual futures volume gradually increased. This is a crucial prerequisite for accurate options valuation and effective hedging.
- Short-Term Dominance: Short-term, or "spot," Bitcoin options tended to have the highest trading volumes, a sign of a maturing market.
- Balanced Sentiment: Throughout 2019, trading volume between call and put options was relatively balanced, indicating no significant market bias toward either bullish or bearish positions.
Overview of the Crypto Options Market
The cryptocurrency options market is expanding rapidly. A landmark event was the Chicago Mercantile Exchange (CME) launching Bitcoin futures options in early 2020, which saw its first-day trading volume exceed $2 million. Beyond CME, numerous other crypto exchanges are seeking regulatory approval from bodies like the U.S. Commodity Futures Trading Commission (CFTC) to offer more complex derivatives contracts.
This maturation paves the way for increased institutional participation, which, over time, is expected to further enhance market liquidity and depth.
Dataset and Methodology
For this analysis, we rely on tick-by-tick trade data to measure actual yearly trading volume. The database from Kaiko, covering all 2019 trades on Deribit, reports the date, quantity, price, and type for every transaction. All trade data used here is exclusive to Bitcoin instruments for the full calendar year of 2019.
The dataset includes:
- Total number of trades (futures and options): 26,380,184
- Number of unique trading instruments: 1,687
Compared to a futures-only market, introducing options with multiple strikes and expiries generates a massive amount of data. For instance, Deribit typically lists more than 10 distinct BTC options contracts for a single expiration date, each with a unique strike price. This creates a significantly larger universe of tradable instruments than in futures markets, where usually only one BTC contract exists for a given expiry. The strike price parameter allows exchanges to differentiate and greatly expand the number of derivative contracts available to users.
On just one day in 2019, Deribit facilitated trading across 1,687 different instruments on its platform.
For those looking to dive deeper into real-time market data and advanced trading tools, this kind of analysis is invaluable. 👉 Explore real-time market analytics
Frequently Asked Questions
What are call and put options in cryptocurrency?
Call options give the holder the right to buy an asset at a predetermined price, benefiting if the market price rises. Put options give the right to sell, profiting if the market price falls. They are essential tools for hedging and speculation.
Why is the growth of quarterly futures important for options?
A robust market for quarterly expiry futures provides reliable forward price data. This data is critical for the accurate pricing of options and for enabling traders to effectively hedge their options positions.
What does balanced volume between calls and puts indicate?
A relatively even split in trading volume between call (bullish) and put (bearish) options suggests the market does not have a strong directional bias. It points to a healthy, two-sided market with diverse views.
How does institutional participation affect the options market?
Increased involvement from institutional investors typically brings greater liquidity, tighter bid-ask spreads, and more sophisticated trading strategies. This leads to a deeper, more efficient, and stable market overall.
What is a perpetual future?
A perpetual future is a type of derivatives contract without an expiration date. It uses a funding rate mechanism to keep its price anchored to the underlying spot asset, allowing traders to hold positions indefinitely.
In the second part of this series, we will conduct a detailed analysis of BTC futures and options trading volumes, including a thorough product breakdown.
This article is compiled from an analysis report on the Bitcoin options market by Kaiko, a research firm specializing in cryptocurrency market data.