The Rise of Regulated Crypto Products in the US Market

A Growing Demand for Security and Compliance

The US Securities and Exchange Commission (SEC) has approved options tied to BlackRock’s spot bitcoin exchange-traded fund (IBIT), which debuted on November 19. The popularity of these options is a testament to the growing demand for regulated crypto products in the US market.

A Comparison to Deribit’s Options Market

The open interest in IBIT options contracts has already reached 2.16 million, representing a notional value of $11 billion. This is a significant achievement, especially considering that it is only half the size of Deribit’s eight-year-old bitcoin options market, which has a locked-in value of $23 billion.

Understanding Options and Their Role in the Crypto Market

Options are derivative contracts that give the purchaser the right to buy or sell an underlying asset at a preset price at a later date. They are a popular tool for traders and investors, allowing them to speculate on or hedge against price movements, volatility, and the effects of time (referred to as theta).

The Role of Deribit in the Crypto Options Market

Deribit has been a leading player in the crypto options market for years, with traders and investors using its bitcoin and ether options to set up complex directional and non-directional strategies. However, the exchange’s offshore status has kept U.S.-based investors looking for regulated avenues.

The Impact of IBIT Options on the Crypto Market

IBIT options have filled the gap left by Deribit, offering a regulated and secure platform for U.S.-based investors. The growing popularity of IBIT options is challenging Deribit’s dominance in the crypto options market, but Deribit’s CEO, Luuk Strijers, sees this as a positive development.

A New Era for Crypto Options

Strijers believes that IBIT options have created positive ripple effects for the industry, introducing new arbitrage opportunities and facilitating enhanced risk-offloading strategies for institutional participants. The activity in IBIT options is concentrated in short-dated options, indicating the demand for lower premium options.

Conclusion

The rise of regulated crypto products in the US market is a significant development, offering a secure and compliant platform for investors. IBIT options have filled the gap left by Deribit, providing a regulated and secure platform for U.S.-based investors. As the crypto market continues to evolve, it is likely that we will see more regulated products and exchanges emerge, providing a more secure and compliant environment for investors.

FAQs

Q: What is the notional value of IBIT options contracts?
A: The notional value of IBIT options contracts is $11 billion.

Q: How does the activity in IBIT options compare to Deribit’s options market?
A: The open interest in IBIT options contracts is half the size of Deribit’s eight-year-old bitcoin options market, which has a locked-in value of $23 billion.

Q: What is the primary difference between IBIT options and Deribit’s options?
A: IBIT options are regulated and secure, while Deribit’s options are offshore.

Q: How does the demand for IBIT options impact Deribit’s dominance in the crypto options market?
A: The growing popularity of IBIT options is challenging Deribit’s dominance in the crypto options market, but Deribit’s CEO, Luuk Strijers, sees this as a positive development.

Q: What is the primary use case for IBIT options?
A: The primary use case for IBIT options is speculation on or hedging against price movements, volatility, and the effects of time (referred to as theta).

Q: How does the activity in IBIT options compare to other regulated crypto products?
A: The activity in IBIT options is concentrated in short-dated options, indicating the demand for lower premium options.