Recent fresh capital inflows has accelerated the growth of cryptocurrency options
Happy Friday! BTC up 3% in the past 24 hours, flirting $9,900, teasing the market at the $10K psychological level. In the last few days, I noticed BTC weakness from the start of Asia session followed by buying activity when the U.S. woke up, driven primarily by spot buying (futures curve still relatively flat). This is why I suspect that U.S. capital is driving the current bid; both retail and institutions. You would also notice that CME listed BTC May futures has been trading at a 50–75 bps premium recently.
Another sign of U.S. or regulated capital coming into this space is that the total BTC options open interest made a new record of almost $1.3bn yesterday, the result of substantial increase of activity in CME. Yesterday marked the third consecutive record volume day for CME listed BTC options; concentrated mostly on calls; $10k, $10.5k and $11k across both May and June tenors.
The last reason why I think fresh capital is being invested is that we are starting to see the recent breakdown in correlation between BTC and S&P. While this correlation tends to flip flop, the current weakness in correlation is also testimony that fresh capital is flowing into the space defying the gravity of this week’s S&P weakness.
With increased sophistication from market participants, more exchange venues, and new trading entrants, 2020 may mark the year of hyper-growth in cryptocurrency options.
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