The cryptocurrency derivatives landscape has undergone a transformative evolution in recent years, with one of the most significant developments being the rapid expansion of the options market. Platforms such as Deribit, launched in 2016, and LedgerX, introduced in 2017, now offer standardized options—commonly known as call and put options—bringing institutional-grade financial instruments to the digital asset space.
The maturation of liquid futures markets has paved the way for more sophisticated derivative products, including perpetual futures and fixed-maturity futures. These advancements have enabled more robust and scalable options trading. Options contracts are particularly valuable to the crypto ecosystem because they allow traders to hedge against sudden and volatile price movements, offering a critical risk management tool in an inherently unpredictable market.
While a deep dive into options pricing models like Black-Scholes or binomial trees is beyond the scope of this article, it's essential to understand that accurate options valuation relies heavily on a reliable forward price of the underlying asset. This forward price is typically derived from futures contracts. The emergence of futures markets with regular rolling maturities has made it possible to list options with multiple strike prices and expiration dates—enhancing both pricing accuracy and hedging precision.
This two-part series aims to explore the current state of emerging crypto derivatives markets, focusing on their structural dynamics, potential biases, and future growth trajectories. In this first installment, we zoom in on Bitcoin (BTC) futures and options trading activity on Deribit throughout 2019. All data and assumptions are based exclusively on that year’s trading behavior on the platform.
Key Insights from Deribit in 2019
Analysis of Deribit’s 2019 trading data reveals several telling trends about the early-stage Bitcoin options market:
- Stable daily trading volume: Bitcoin options maintained consistent activity, with an average daily notional value of $25 million.
- High impact despite low volume share: Although BTC options accounted for only 1.4% of total trade count, they represented a striking 31.88% of all derivative notional volume. This discrepancy stems from the fact that options trades (BTC1) had significantly larger median trade sizes compared to futures (UDS80).
- Growing importance of quarterly futures: The ratio of quarterly futures volume to perpetual futures volume steadily increased throughout the year. This shift is crucial—it provides a stable forward curve necessary for accurate options pricing and effective hedging strategies.
- Dominance of short-term options: The highest trading volumes were observed in near-term “spot” options. This pattern reflects a maturing market structure where traders increasingly use short-dated instruments for tactical positioning and volatility plays.
- Balanced call/put activity: Throughout 2019, trading volume between call (bullish) and put (bearish) options remained remarkably even. This equilibrium suggests no strong directional bias in market sentiment during the period—a sign of healthy, diversified participation.
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The Evolving Landscape of Crypto Options
The Bitcoin options market has continued to gain momentum beyond 2019. A major milestone occurred in January 2020, when the CME Group launched Bitcoin futures options—marking the first regulated U.S.-based exchange to offer such a product. On its debut day alone, trading volume exceeded $2 million, signaling strong institutional interest.
CME’s entry into the space not only added legitimacy but also set a precedent for compliance and transparency. Since then, several other cryptocurrency exchanges have pursued regulatory approval from bodies like the Commodity Futures Trading Commission (CFTC) to launch complex derivatives, including options and structured products.
This regulatory evolution is accelerating institutional adoption. As traditional finance players enter the crypto derivatives arena, they bring deeper capital pools, advanced trading strategies, and demand for reliable pricing models—all of which contribute to improved market liquidity and reduced volatility over time.
Data and Methodology
To ensure accuracy and relevance, this analysis is based on tick-level transaction data sourced from Kaiko, a leading provider of institutional-grade crypto market data. The dataset covers all BTC-related trades executed on Deribit throughout 2019, including timestamps, trade sizes, prices, and contract types.
Core Dataset Highlights:
- Total trades (futures + options): 26,380,184
- Unique instruments traded: 1,687
These numbers underscore the complexity introduced by options markets. Unlike futures—where typically only one BTC contract exists per expiration date—options multiply available instruments through various strike prices and maturities.
For example, Deribit routinely listed over 10 BTC options contracts expiring on the same date, each with a different strike price. This granularity allows traders to express nuanced views on price direction and volatility while enabling exchanges to offer a broader range of hedging and speculative tools.
On a single day in 2019, Deribit facilitated trading across 1,687 distinct financial instruments, highlighting the platform’s role as a hub for sophisticated derivatives activity.
Why Options Matter in Crypto
Bitcoin options serve multiple functions beyond speculation:
- Hedging: Miners, long-term holders (HODLers), and institutions can protect their BTC holdings against downside risk without selling.
- Yield generation: Users can write covered calls to earn premium income on their existing BTC portfolios.
- Volatility trading: Traders can profit from expected swings in BTC price without taking directional bets.
- Portfolio diversification: Options enable strategies like spreads, straddles, and collars—common in traditional markets but increasingly adopted in crypto.
As market infrastructure improves, these use cases will become more accessible to both retail and institutional participants.
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Frequently Asked Questions (FAQ)
Q: What is a Bitcoin option?
A: A Bitcoin option is a financial contract that gives the buyer the right—but not the obligation—to buy (call) or sell (put) Bitcoin at a predetermined price (strike price) before or at a specified expiration date.
Q: How does an option differ from a futures contract?
A: Unlike futures, which obligate both parties to settle the contract at expiry, options provide flexibility. The buyer pays a premium for the right to exercise the option, limiting their maximum loss to that premium.
Q: Why are quarterly futures important for options pricing?
A: Quarterly futures help establish a stable forward curve, which is essential for accurately pricing long-dated options and constructing reliable hedging strategies.
Q: What does “notional value” mean in options trading?
A: Notional value refers to the total worth of the underlying asset controlled by the option contract. For example, a BTC call option with a strike of $40,000 controls 1 BTC—so its notional value is $40,000 at that price.
Q: Is the crypto options market dominated by retail or institutional traders?
A: While retail participation remains significant, institutional involvement has grown steadily since 2019—especially after regulated venues like CME entered the space.
Q: Can I use options to hedge my Bitcoin holdings?
A: Yes. By purchasing put options, you can protect your BTC portfolio against price declines while maintaining ownership—ideal for long-term holders who want downside protection without selling.
Looking Ahead
The insights from Deribit’s 2019 data lay the foundation for understanding how crypto derivatives markets have evolved—and where they’re headed. In the next part of this series, we’ll analyze trends in BTC futures and options volume in greater depth, examine product segmentation, and explore how implied volatility and open interest reflect shifting market sentiment.
As liquidity deepens and regulation clarifies, Bitcoin options are poised to become a cornerstone of digital asset investing—offering tools once reserved for Wall Street to a global audience.