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Bitcoin Options Volumes Surged During Recent Price Drop, Then Died Off

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The nascent market for bitcoin options contracts saw surging trading volumes as the bitcoin (BTC) spot price dropped heavily last Sunday and Monday. Since then, however, interest has largely died off, with volumes now back to a normal range.

Source: iStock/DNY59

The total bitcoin options trading volume on Monday reached USD 198.7 million, the highest number ever recorded, according to data from crypto trading analytics provider Skew.

A likely explanation for the surging interest in options trading amid this week’s sharp sell-off is investor demand for hedging, a form of financial insurance. For a trader, the goal of a hedge is to structure a trade such that if money is lost on one trade, some amount of money will simultaneously be made back on another trade. In this case, the hedging instrument is an option that pays out if the bitcoin spot price falls.

Source: Skew

Among the options exchanges tracked by Skew, Deribit recorded by far the highest trading volume over the past month, followed by OKEx and the more institutionally-focused marketplace CME. Once again, the much-talked-about marketplace Bakkt lagged far behind its competitors, recording no options trading volume at all on most days over the past month.

Source: Skew

As would be expected, bitcoin options trading volumes appear to follow moves in the bitcoin price quite closely, with large prices moves in the spot also attracting more trading activity in the options market, as demand for hedging increases.

Following previous years’ growing interest in bitcoin futures, bitcoin options trading is something that has really taken off this year, with several new players entering the market. The most high-profile among them was probably the Chicago-based derivatives market CME, which opened its new bitcoin options market on January 13 this year.