The recent surge in the cryptocurrency market has not only ignited spot trading but also brought derivatives, particularly options, into the spotlight. According to data from Deribit, the largest digital currency options exchange, daily Bitcoin options trading volume recently reached a historic high. This milestone highlights the growing interest and potential of options in the crypto space.
As a financial derivative that followed futures contracts into the crypto world from traditional finance, options have unsurprisingly become a new focus for major exchanges. Since the second half of last year, platforms including Bakkt, OKEx, and Binance have launched options products. Huobi has also recently hinted at the upcoming release of its own options offering.
Despite this rush, the current crypto options market remains niche. Even established players like OKEx have yet to develop a sufficiently liquid market, and retail adoption is still low. Bakkt, often seen as a 'traditional finance incumbent,' has reported zero options trading volume for several consecutive months.
Compared to futures, options offer more sophisticated functions, such as hedging with non-linear payoff structures, which can preserve upside potential while limiting downside risk. However, their complexity also creates a natural barrier to entry, making them harder to understand and trade for the average investor.
Record-Breaking Bitcoin Options Volume
The bullish momentum across major cryptocurrencies has significantly boosted activity in derivatives markets. Data from OKEx shows that the total open interest for BTC futures contracts on the platform exceeded $1.197 billion on July 29, a 123% increase from early July. The 24-hour trading volume for BTC futures surged to $9.72 billion, up 835% from the beginning of the month.
While futures continue to dominate, options are beginning to show promising growth. On July 29, Deribit announced that it had traded 47,500 Bitcoin options contracts worth $539 million in a single day—2.73 times the previous record of $196 million set on the day of Bitcoin's halving.
Skew, a crypto derivatives data aggregator, indicates that Deribit controls about 80% of the digital currency options market. Other players like CME, OKEx, LedgerX, and Bakkt currently hold much smaller shares.
Although Deribit's $539 million daily volume is still modest compared to OKEx's $9 billion+ futures volume, the near-100% growth in options trading over the past month signals emerging potential.
What Are Crypto Options?
Like futures, options are financial instruments borrowed from traditional markets. An option gives the holder the right, but not the obligation, to buy or sell an asset at a predetermined price on or before a specific date.
In crypto, the most common types are call options (betting on price increases) and put options (betting on decreases). Buyers pay a premium for this right, while sellers collect the premium and are obligated to fulfill the contract if the buyer exercises the option.
This structure allows for asymmetric risk: buyers can lose only the premium paid, while sellers face theoretically unlimited losses. Options are thus inherently zero-sum instruments.
Although options trading doesn’t involve margin calls or liquidations like futures, it still carries significant risks. One analogy is that buying options is like buying a lottery ticket: you risk a small amount for a potentially large payout, but repeated losses can add up.
Major Exchanges Are Expanding Options Offerings
Derivatives, especially futures, have become a major revenue driver for crypto exchanges due to high fee income. However, the futures market is already highly concentrated, with OKEx, Huobi, BitMEX, and Binance dominating.
Options represent a blue ocean—a less saturated market with growth potential. Since late last year, Bakkt, OKEx, Binance, Hbtc, Gate.io, and others have launched Bitcoin options products. Huobi is in final testing for its options offering, and Matrixport, a spin-off from Bitmain, recently announced a derivatives exchange focused on competing with Deribit.
Despite this activity, liquidity remains low. Skew data shows zero trading volume on Bakkt for months, and OKEx's options order book often has only one or two orders per contract. Binance has attempted to simplify options with shorter expiration times (as low as 5 minutes), making it feel more like gambling than sophisticated trading.
Exchanges are essentially buying a call option on the future of options trading: they invest in development hoping for a future payoff, but for now, it's a speculative bet.
How Far Are We from Mass Adoption?
Options have gained visibility thanks to recent volume spikes, but they are far from becoming mainstream crypto derivatives.
In traditional finance, modern options markets began in 1973 with the Chicago Board Options Exchange. Over decades, options gained popularity in Europe and the US due to their flexibility in expiration dates and strike prices, which allow for tailored risk management strategies.
In China, options were introduced only in 2015. Their complexity and high barriers to entry have limited adoption even in traditional markets.
In crypto, while there are no formal eligibility requirements, the learning curve is steep. Many traders find options confusing compared to futures. Different expirations and strike prices make risk assessment challenging, and the lack of reliable benchmarks doesn’t help.
Some investors question the need for options when futures are already risky enough. As one trader noted, the crypto options market today resembles the early days of futures—everyone is still learning.
However, options offer unique advantages, especially for hedging. For example, Bitcoin miners can use put options to guarantee a minimum selling price while retaining upside potential. This is more flexible than futures-based hedging, which caps both gains and losses.
Unlike futures, options are highly dependent on volatility. In sideways markets, options lose value over time due to theta decay, making them less suitable for stagnant conditions.
For now, options remain a tool for professionals rather than retail traders. While growth is encouraging, the market is still immature. From a risk perspective, premature hype may not be beneficial.
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Frequently Asked Questions
What are Bitcoin options?
Bitcoin options are financial contracts that give the buyer the right to buy or sell Bitcoin at a set price before a specific date. They are used for speculation or hedging against price movements.
How do crypto options differ from futures?
Options provide the right but not the obligation to trade, while futures require both parties to fulfill the contract. Options buyers risk only the premium, while sellers take on greater potential losses.
Why is options trading volume growing?
Increased volatility and bullish momentum in crypto markets have drawn attention to options as tools for leveraged trading and risk management. Institutional interest is also rising.
Can options be used for mining income protection?
Yes, miners often use put options to lock in minimum selling prices. This protects against downside risk while allowing participation in potential price rallies.
What are the risks of options trading?
Buyers can lose the entire premium if the option expires worthless. Sellers face unlimited losses if the market moves against them. Time decay also erodes option value.
Which exchanges offer Bitcoin options?
Major platforms include Deribit, OKEx, Binance, and CME. Huobi and others are planning to launch options products soon.