Derivatives products have been being developed for Bitcoin since 2017 when we first saw Bitcoin futures on cryptocurrency exchanges like BitMEX and later on with the Chicago Mercantile Exchange (CME), the Chicago Board Options Exchange (CBOE) and Bakkt.
This week, another derivatives product has been launched for Bitcoin: options. These differ from futures contracts in the sense that they’ll give traders the “opportunity” to buy or sell the underlying asset at a pre-determined price and date, but are not obligated to do so like in futures trading. Call (buy) and put (sell) options allow traders to develop more sophisticated trading strategies. They can be used to speculate, but can also be used to hedge their bets.
Bakkt launched BTC options in late 2019, but since the launch of the exchange as a whole, the open interest and trading volume has been low relative to the CME. Today, the new crypto-derivatives exchange FTX has launched options on their platform and the trading volume hit $1 million within the first two hours. Tomorrow, another exchange will be launching Bitcoin options, the CME. It has been said by a JPMorgan analyst that “This unusually strong activity over the past few days likely reflects the high anticipation among market participants of the option contract”.
New financial instruments have been being developed for Bitcoin for quite some time for institutional investors. Other digital assets have been left out of that scope however, which may explain Bitcoin 70% dominance in the cryptocurrency market. There were rumours that the CME might possibly list ETH futures of which we haven’t seen or heard any updates yet.
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