Deribit Bitcoin Options Open Interest Hits All-time High

Notional open interest on the largest centralized crypto derivatives exchange hit a record high Wednesday, with demand for bitcoin options leading the way amid a turbulent time for the traditional finance industry.

Deribit’s notional open interest on the platform exceeded $20 billion Wednesday, according to the company. Most of that was attributed to $11.7 billion from bitcoin options — also an all-time high — and $6.9 billion from ether options. 

The record comes after the fall of Silvergate Bank, Silicon Valley Bank and Signature Bank in recent weeks, which some said has shaken trust in financial institutions. 

“The first cause of it all could be that BTC is finally acting as a hedge for the traditional financial and especially banking system,” said Luuk Strijers, Deribit’s chief commercial officer. “Bitcoin has failed to meet expectations as an inflation hedge in the past but is finally acting as it was intended to do, triggering an elevated level of interest.”

Derivatives exchange CME Group has also seen consistent volume and open interest growth in its crypto futures and options products. 

Its average daily bitcoin options open interest in 2023 is up an all-time record of 140% — a notional value of $936 million, a company spokesperson told Blockworks. CME bitcoin options hit record daily open interest on Tuesday, reaching a value of $1.55 billion.

A potential end to rate hikes could also be causing more interest in all risk assets, including bitcoin, Strijers told Blockworks. The Federal Reserve raised interest rates by 25 basis points Wednesday, continuing a trend of slower-paced increases after previous bumps of 0.5% and 0.75%.

Luke Hoersten, founder and CEO of bitcoin derivatives exchange Bitnomial, argued bitcoin has emerged as a safe store of value as people realize putting their money into US Treasury-backed cash deposits can be risky. Traders are moving money into bitcoin, he added, and using futures and options to protect themselves from price changes.  

“Some traders are worried about synthetic cash-settled exposure because it can debase or de-peg as the environment becomes uncertain and more volatile,” Hoersten said. “Physically settled futures and options are a better choice because they give people native exposure to both cryptocurrency and fiat currency.”

CK Zheng, co-founder and chief investment officer of crypto hedge fund ZX Squared Capital, said he believes bitcoin is “starting a new cycle” after reaching a bottom following the bankruptcy of crypto exchange FTX last November. 

He agreed the current banking crisis further validates bitcoin’s thesis as a digital gold of sorts against government money printing, and offered other reasons for the increased open interest in crypto derivatives.  

“There are not many natural sellers, like crypto miners, who need to get rid of BTC, [and] the leverage in the crypto industry is no longer a great threat to this ecosystem,” Zheng explained. “The next BTC halving is coming early next year, which is very bullish given the design of the halving process.”

The halving refers to the bitcoin mining reward being reduced from 6.25 BTC per block to 3.125, anticipated to take place in April 2024.

No matter the exact cause of the Deribit notional open interest record high, Strijers said, increased volatility implies investor interest in instruments that enable them to benefit from protecting themselves from the consequences.

“For us, this implies higher option volumes, an increase in the number of contracts outstanding, and more call buying to position for possible upside,” he said. “Now that the price has increased, we are also seeing some more put activity demonstrating clients’ interest in potentially hedging downward risk,” he said. 

The majority of Deribit’s bitcoin options contracts are for the strike price of $30,000. The strike price of an option is the level at which an investor can buy the underlying security in the case of a call, or sell it in the case of a put, before the contract expires. 

Bitcoin’s price was roughly $28,100 at 3:00 pm ET — up 13.1% from seven days ago. 

“$30,000 is the next resistance level,” Zheng said. “If BTC breaks this level convincingly, it will be very bullish for the near term.”

Updated March 22, 2023 at 5:05 pm ET: Added information about CME Group’s bitcoin options open interest.

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