crypto strategy

By Keeping Its Options Open, The Crypto Market Is Moving To A Different Beast

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As the crypto market continues to stumble into a bearish state, options trading has become a silver lining in the ongoing storm.



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Options trading volumes have increased on global crypto exchanges as institutional investors trade more and more crypto options to hedge their bets in an uncertain environment, while even Bitcoin miners adopt trading strategies in the purpose of charting a course in untested waters.

The impact of the trend is already very visible. Earlier this month, in a disappointing second-quarter earnings report, crypto exchange giant Coinbase (COIN) referenced traders migrating to derivatives-focused platforms as the reason for lower volume. transactions. Coinbase’s drop in volume led to a 30% drop in revenue for the company, below most analysts’ estimates.

Such trends testify to the evolution of the crypto market by natural selection, with mutations bound to continue. Despite some promising macroeconomic signs, soaring inflation across the globe and a looming global recession may well prolong the crypto winter into the second half of this decade. To survive, the crypto market needs to think outside the box and keep its options open.

In doing so, it is imperative to keep in mind the relative infancy of crypto options trading and with it, its potential for extraordinary growth. As EDG CEO Chris Bae noted, crypto options trading volumes “have yet to reach their J-curve in terms of adoption and growth.”

Currently, the focus remains on a narrow set of blue-chip crypto assets, namely Bitcoin (BTC) and Ethereum (ETH), with many traders, for example, hedging positions on market developments. highly anticipated such as the impending merger of the Ethereum blockchain. ‘, which will see the current Ethereum mainnet merge with the Beacon Chain proof-of-stake system, marking the end of proof-of-work for Ethereum and the full transition to proof-of-stake. However, such market events are few and far between.

Growth should come from two places. First, these assets are likely to become a higher proportion of trading volume. Currently, Bitcoin options trading accounts for just 2% of open derivatives contracts on exchanges trading the cryptocurrency, which has a market capitalization of around $462 billion, according to structure product provider Enhanced Digital Group ( EDG).

Regulatory clarity on the legal status of major digital assets and permission to incorporate them into exchange-traded funds (ETFs) are the catalysts needed to kick-start this growth. As EDG’s quant developer Marcin Maksymiuk recently stated, “When you think of all the other [S&P 500]-similar products, including [exchange-traded funds]SP Minis, etc., you can see that bitcoin options have multiple growth ahead of them.”

Unfortunately, regulatory hesitation continues to prevail in this area, with the SEC recently rejecting Grayscale’s Spot ETF application, despite the company’s extensive efforts to gain approval. Proponents of a bitcoin cash ETF endorsement argued that the product would provide an inexpensive and easily accessible way for individuals and institutions to invest in bitcoin.

Optimism about an approval began to grow after the approval of a number of bitcoin futures-based ETFs last fall, and two more futures ETF approvals earlier this year on the market. basis of the Securities Exchange Act of 1934, the same law under which spot bitcoin ETFs were filed.

For what it’s worth, Grayscale protested that it’s not consistent to endorse an ETF based on bitcoin futures but not allow one based on the underlying investment. I am personally convinced that a cash ETF based on Bitcoin will inevitably receive the green light. It’s only a matter of “when”, not “if”, and when that happens, the market capitalization of Bitcoin and other crypto assets will increase, spurring demand and further investment as fear of miss something sets in.

Second, markets will likely tie options to a growing range of digital assets, not just BTC or Ether. This does not only mean less conventional cryptocurrencies, like Cardano or Solana, but a wide range of digital assets, whether NFT or – in the longer term – tokenized assets ranging from commodities to real estate, whose winning digital infrastructure is yet to emerge. Once it does, we won’t just be dabbling in a digital asset marketplace, we’ll be living in a digital asset ecosystem.

In short, the growth of crypto options is driven by the convergence of a number of factors, including technological improvements and bold regulatory moves, not just sudden market shocks. As the market clears these hurdles over time, there is no reason options shouldn’t make up 70% of the crypto trading market.

At Bit.com, we believe that options trading can help put the wind back in the crypto industry’s sails – that’s why we’re launching a new, best-in-class USD options trading service. its category, for our users, allowing them to make themselves known to a range of markets and hedge risks among them, as they wish.

The new service reflects our belief at Bit.com that natural selection does not reward the strongest players, only the most adaptable. This is not the first time that news of the demise of crypto has been greatly exaggerated. Winter is definitely coming, but the crypto industry won’t die down. We are only going into hibernation and will likely emerge as a very different beast.

Note: Investing in cryptocurrency and crypto assets is subject to financial risk and readers should do their own due diligence. Entrepreneur Media does not endorse any such investment.

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