The recovery of the overall crypto market this year has led to a surge in the digital asset derivatives market as institutional investors look for exposure to the crypto space.
According to a recent Bloomberg reportThe deadline for US regulators to approve or reject Bitcoin (BTC) exchange-traded funds (ETFs) has prompted traditional investors to turn to crypto options and futures, fueling unprecedented trading volumes.
Crypto options trading reaches record highs
Before options expired Friday morning, crypto options trading volume hit a new all-time high, with options worth a notional value of $11 billion, as highlighted by Bloomberg. Of this total, Bitcoin contracts accounted for $7.7 billion, while Ethereum (ETH) options accounted for $3.5 billion.
Despite the expiry of many options, the impact on the major cryptocurrencies has been limited. With a strong support floor at $42,000, Bitcoin has held its position for a potential uptrend once bullish momentum returns and buying pressure increases.
Over the past 24 hours, Bitcoin has traded within the same range as the day before, at $42,200, experiencing a decline of just 0.4%. Nevertheless, Bitcoin has yet to fully recover from its 3.4% decline over the past seven days.
ETH, on the other hand, was hit by the expiration of options contracts. Ethereum, the second largest cryptocurrency on the market, fell by more than 2%. EHT fell to $2,316 after hitting a yearly high of $2,445 on Thursday.
However, while increased trading activity may accompany option expirations, it is unlikely to have a significant impact on spot market prices, said Luuk Strijers, Deribit’s chief commercial officer.
Strijers notes that clients are rolling over their positions to the 2024 expiration date, and additional activity is expected post-expiration. Attention and trading activity will be primarily focused on the upcoming ETF decision, Bloomberg notes.
Increase in traditional asset managers
The cryptocurrency market has seen a strong rally this year, with Bitcoin rising nearly 160% after a turbulent 2022 marked by sector scandals and price drops.
The recovery has been fueled in part by optimism surrounding the potential adoption of spot Bitcoin ETFs, which would attract a broader range of investors to the asset class.
Ryan Kim, head of derivatives at prime digital asset brokerage FalconX, highlights the growing participation of crossover macro accounts, referring to large traditional asset managers that allocate a small percentage of their portfolios to cryptocurrencies and crypto-focused hedge funds.
Moreover, according to Bloomberg, perpetual futures, a favorite tool to leverage crypto transactions, are trading at a significant premium compared to spot prices, indicating rising demand for such products.
Overall, the surge in the cryptocurrency derivatives market, driven by options expirations and the upcoming decision on Bitcoin ETFs, reflects the growing interest of institutional investors in the crypto space.
Record-breaking trading volumes and increased participation from traditional asset managers highlight the evolving digital asset landscape.
While the market awaits the regulator’s verdict on Bitcoin ETFs, it remains to be seen how these developments will shape the future trajectory of the crypto market and its integration with traditional financial systems.
Featured image from Shutterstock, chart from TradingView.com