The Year of Bitcoin Options?

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.

Third consecutive record volume day for CME options… Institutions are coming…

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.

Source: CME. Regulated traders are mostly bullish in the next 1–2 months.

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.

PS: I have started a daily trading commentary to help offer my two cents worth of market musing. If you want to subscribe to it, please message me. Opinions expressed are solely my own and do not express the views of my employer.