Bitcoin's Options Market Has Overtaken Its Futures Market in a Sign of Growing Sophistication

The crypto market has come back to life this year, with bitcoin (BTC) doubling in value, supposedly on the back of haven demand, spot ETF excitement in the U.S. and dovish Federal Reserve expectations.

While most activity was initially concentrated in bitcoin's spot and futures markets, options tied to the cryptocurrency, which offer a cheap way to bet on a price rise or drop, have become more prominent.

In terms of open interest (OI), the BTC options market is now bigger than the futures market. At press time, the U.S. dollar value locked in active options contracts stood at $17.39 billion, almost 10% more than futures' open interest of $15.84 billion, according to data source CoinGlass.

Increased activity in the options market is a sign of market sophistication, according to Luuk Strijers, chief commercial officer of leading crypto options exchange Deribit.

"The surpassing of BTC options open interest over futures OI is a clear sign of the market maturing," Strijers told CoinDesk. "This shift indicates a growing preference for options as tools for strategic positioning, hedging, or access to the recent rise of implied volatility, reflecting the market's evolving sophistication."

A bigger options market also means traders need to consider the impact of quarterly and monthly settlements and market makers' hedging activities on spot prices.

Options are derivative contracts that give the purchaser the right, but not the obligation, to buy or sell the underlying asset at a predetermined price on or before a specific date. A call option gives the right to buy, while a put confers the right to sell.

Traditionally, options are used to mitigate risk, although some speculators use them like futures to amplify returns. Bulls typically buy puts to protect against a potential downside, while bears use call options to protect from a sudden upswing in prices. Efficient use of options is contingent on a thorough understanding of key metrics, the so-called Greeks – delta, gamma, theta and rho, that affect the price of an options contract.

One possible reason for options' growing popularity is that they allow traders to not only hedge against and profit from the bitcoin price, but also other factors such as volatility or the degree of price turbulence and time.

Writing or selling options to profit from a market lull and collect an additional yield on top of the spot market holdings were popular strategies earlier this year. More recently, traders have bought options to benefit from the renewed volatility explosion. Volatility has a positive impact on options' prices.

Unlike options, spot and futures markets are one-dimensional, allowing speculation only on the direction of the price.

Futures contracts commit a buyer to pay for and a seller to deliver a particular asset at a future date. Futures are generally considered more risky than options, involving greater leverage and allowing traders to control assets of much greater value. That exposes futures traders to outsized losses that exceed the value of their initial deposit and to forced liquidations by exchanges.

UPDATE (Nov. 15, 09:24 UTC): Adds interpretation to headline.