Traders Say After Root, Bitcoin Options Point To Positive Signs
Crypto is going through a historic period of volatility, but options traders are seeing positive signs within the market Ruckus And the controversy that overtook digital-asset Lenders and others in the area.
Chris Bay, chief executive and co-founder of structured-derivative-solutions provider EDG and a former trader at UBS and Goldman Sachs, is looking at Open Interest and tracking global exchanges that offer options trading.
“This does not suggest that liquidity has decreased dramatically,” Mr Bay said in an interview. “There is a lot of data that suggests that the maturity of the market has progressed and that in the options market in particular, it is business as usual, when we take into account the environment in which we are.” BAE said the bid-ask spread appears reasonable.
The environment, of course, has been stressful in many ways. hacksAs well as the combustion of stablecoin projects and the folding of big name crypto hedge funds.
Over the past few weeks, in particular, lenders have shown volatility, with Celsius Network and Babel Finance freezing withdrawals, and Three Arrows Capital, a leading crypto hedge fund, facing liquidity problems.
And it all comes amid a less-accommodative monetary-policy backdrop, where the Federal Reserve and other global central banks are increasingly raising rates to counter the rise in prices.
Certainly, the market is very different than it was during last year’s bull run. Open interest (OI), or the total number of outstanding contracts, has dropped below its high.
According to data from Skew, OI is down a little over $7 billion from a record of around $15 billion in October 2021. Volume is currently at a little under $600 million, compared to an all-time high of more than $8 billion in October as well.
Patrick Chu, head of institutional coverage APAC at Paradigm, a liquidity provider for crypto derivatives, says that the fall in OI reflects market sentiment. During bear markets, interest drops.
Options can serve two functions, he says. One is hedging and the other is speculation. “For one, the amount of assets deployed goes down, so there is less to defend.
For two, speculation, people have a very strong long-term bias in crypto, so when the market goes down, people get reticent,” a reference to the word “wasted” that is often used in the crypto community. .
Still, Chu says, his firm is seeing “more and more TradeFi players” — or traditional-finance participants — showing interest in options. And they are entering the market, he says. This may help explain why the OI level has remained stable despite all the turmoil within the crypto industry.
These institutions are playing a big role in other statistics as well.
A report by digital-asset company Amber Group has revealed that its desk has seen a surge in demand for put-option purchases in the wake of the liquidations it has seen over the past few weeks. “Risk mitigation deserves consideration especially in the current market environment,” the note said.
Meanwhile, Luke Farrell, a trader at crypto market-maker GSR, said that he has seen a drastic change in the options space over the past two years relative to previous cycles. He says institutions are coming, while crypto, prior to 2017, was heavily influenced by retail participation.
Today, institutions are using options for risk-management solutions or to hedge portfolios or positions. In addition, he says, investors can play with options on an expanded number of coins, a trend that prompts holders to use them for risk-management solutions.
Finally, Mr. Farrell says, bitcoin miners, many of whom have found themselves in hot water amid plunging prices for the digital token, are hedging their future production, a change from last year, when a In the midst of a bull market, they weren’t buying protective options.
“They are willing to pay a little bit to protect them from the downside of their cost of production coming down,” he said. “It’s been an interesting change.”
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)