The cryptocurrency market has successfully rebounded from the two-month downturn from the end of May to the end of July. Bitcoin (Bitcoin) And Ethereum (Ethereum) Has been in a leading position and has made considerable gains in the past two weeks. The market is seeing the price level it reached in May of this year.
As prices rise, the cryptocurrency derivatives market, including financial instruments such as futures, options and even micro-futures, has also aroused investor interest.According to Bybt’s data, the open interest (OI) of Bitcoin options on all global exchanges that provide this product exceeds Doubled From the annual low of US$3.63 billion on June 26, it reached a 90-day high of US$7.86 billion on August 14.
Cointelegraph discussed the surge in OI with Shane Ai, head of product development at Bybit, a cryptocurrency derivatives exchange. He said: “The rise in Option OI is mainly driven by institutional participants. The increasing popularity of third-party OTC platforms has facilitated easier execution. Multilateral strategies with deeper liquidity-this is a prerequisite for more institutions to participate.” Data from the on-chain analytics provider CryptoQuant also shows Institutions are buying BTC Just like they did at the end of 2020.
A similar growth peak has also appeared in the indicators of the ether options market. The OI of ether options jumped by 75% from USD 2.42 billion on July 30 to reach a two-month high of USD 4.26 billion on August 14. This resulted in a year-on-year (YoY) growth of 846% for this market.
It is worth noting that the crypto derivatives market is still in the early stages of development, as it will not appear until the second quarter of 2020. Even the global investment banking giant Goldman Sachs announced plans to expand its business in early June. Enter the cryptocurrency market With ether option.
CME data shows strong growth in 2021
Growth can be seen even in the crypto derivatives products offered by the Chicago Mercantile Exchange (CME), the world’s largest derivatives exchange. CME is generally considered to be the benchmark of institutional interest. Currently, they have four crypto derivatives products, bitcoin futures, ether futures, micro bitcoin futures and bitcoin options.
According to data provided by CME Group, as of August 11, the average daily trading volume (ADV) of its Bitcoin futures has increased from 8,231 contracts at the beginning of 2020 to 10,667 contracts at the beginning of 2021, an increase of nearly 30 %. By 2021, the open interest of these futures has increased by 18.6% year-to-date to 8,988 contracts.
Although CME Group has been offering its BTC futures and options since 2017 and 2020, respectively, the exchange launched ether futures and micro BTC futures in February and May earlier this year.
Since its launch on February 8, the average daily trading volume of CME Ethereum futures has been 2,864 contracts, and the average open interest has been 2,436 contracts. The trading volume on May 19 reached a record 11,980 contracts, and the trading volume on June 1 reached a record 3,977 contracts.
For CME Micro BTC futures, their ADV is 21,667 contracts and their OI averages 19,990 contracts. The product is designed to allow retail investors to manage their Bitcoin price risk. It is 1/10 the size of Bitcoin, and 1.5 million contracts have been traded since its launch. On May 19, the trading volume hit a record high of 94,770, and on June 1, it set a record of 38,073 open positions.
Cointelegraph discussed this growth in the market with Luuk Strijers, chief commercial officer of the crypto derivatives exchange. Deribit stated:
“We saw incredible growth in the first and second quarters of this year, showing the potential of derivatives, especially in our case, options driven by growing customer demand. We anticipate this trend Will continue because we are accepting more and more (institutional) customers.”
Organic growth supported by ETH events
Strijers added that the surge in OI in August was not only due to the increase in nominal value due to price increases, but also due to the increase in the number of open positions after the expiration of BTC options in the second quarter.
This shows that the OI growth that the market is currently experiencing is organic and not just a by-product of rising nominal value. He mentioned that this impact is greater for Ether, and added:
“The reason for the latter is the consequence of the launch of EIP-1559 and the burning of nearly $100 million worth of ETH since the upgrade. In addition, the NFT hype has led many people to buy NFTs, use their ETH and buy up call options to avoid missing Potential upside opportunities.”
The Ethereum network finally London upgrade on August 5 This led to the highly anticipated Ethereum Improvement Proposal (EIP) 1559, which changed the network’s transaction pricing mechanism and fee management. Strijers commented on how the London hard fork will affect the headwinds of ETH. He said: “The market seems to appreciate the changes in the London fork. Many ETHs have been locked in smart contracts or pledged. Now due to the gas burning mechanism, the supply has changed. Must become more scarce, pushing prices up.”
Ai Geng mentioned the specific impact of the hard fork on the ETH derivatives market, saying that the term structure of ETH IV has entered contango (a scenario where asset futures prices are higher than spot prices), and at the same time, steeper call options—further as time goes by Observe the trend, tilt. A steeper skew may usually indicate a higher price for an out-of-the-money (OTM) put option and a lower price for an OTM call option.
Some players in the industry are innovating through automated solutions to simplify bitcoin options trading for retail investors. Delta Exchange, a crypto derivatives platform, recently roll out Automatically trade BTC, ETH and Tether under the product name “Enhanced Yield” (USDT).
Regulators are dismissive of derivatives trading
Despite the tremendous growth in the crypto derivatives market, or rather, because of this, regulators are generally skeptical of the industry. In the recent past, various organizations have expanded their cautionary warnings to curb the behavior of participants who provide these financial instruments in the market.
In a very public settlement, BitMEX has agreed to pay 100 million U.S. dollars U.S. Commodity Futures Trading Commission (CFTC)) Filed a lawsuit with the Financial Crime Enforcement Network (FinCEN) Archive It will rest in the U.S. District Court on October 1, 2020. The CFTC accused BitMEX owners of “illegal operation of a cryptocurrency derivatives platform” and violation of anti-money laundering (AML) regulations.
In another example where regulators have strengthened their review of the derivatives trading subsystem, the global cryptocurrency exchange Binance announced that they will Close derivatives trading In Europe, starting with Germany, Italy and the Netherlands.In addition to the European Union, Binance also announced that it will be Restrict access to derivatives For its users in Hong Kong. CEO Changpeng Zhao mentioned that this is a measure to establish “global encryption compliance best practices.”
In early January of this year, the UK Financial Conduct Authority (FCA) banned crypto exchanges from selling crypto derivatives and exchange-traded notes (ETN) to retail consumers. The regulator cited the reason for this ban because these products are “not suitable for retail consumers because of the harm they cause.”
Although regulators cracked down on encrypted derivatives, the futures and options market continued to show tremendous growth this year. Inca Digital report disclose Hundreds of traders in the United States are evading local regulations and trading crypto derivatives on exchanges such as FTX and Binance. Due to regulatory issues, the official US counterparts of these platforms do not provide derivative products on their platforms.
However, Brett Harrison, president of FTX.US, FTX’s US counterpart, recently statement The platform aims to provide crypto derivatives trading in the United States in less than a year. Harrison also mentioned that since institutional investors are responsible for nearly 70% of FTX.US’s trading volume, their current goal is to expand their retail base in the country.
This reasoning may be the driving force behind The exchange recently decided to hire Kevin O’Leary — Aka Mr. Wonderful Shark tank Fame-as the brand ambassador and official spokesperson of FTX.
Although this may be pure conjecture, with the improvement of liquidity, the growth of the crypto derivatives market is undeniable and inevitable in the future. Investors are in great need of these tools that provide hedging and risk solutions, especially in these periods of high volatility.