Crypto Options wave is coming
The derivative market in traditional finance (TradFi) has been experiencing exponential growth, with options and futures contracts emerging as prominent players. While futures contracts offer enticing opportunities, they also come with significant risks. However, options contracts have gained popularity among investors and institutions seeking to hedge risks and protect investment portfolios. In the fast-paced world of cryptocurrencies, options contracts are gradually gaining traction and have the potential to surpass the spot and futures markets. They are reshaping the digital asset landscape and empowering investors in unprecedented ways, leading experts to believe that options will be the world’s third strongest wave of crypto markets.
One of the key advantages of options in the crypto market lies in their ability to protect and optimise investment portfolios. Given the volatile nature of digital assets, options contracts act as safeguards, enabling investors to hedge against adverse price movements. By strategically employing options, traders can create protective positions that limit potential losses while preserving the upside potential of their holdings.
Furthermore, options contracts play a vital role in fostering market stability. By providing a platform for participants to predict and trade on future price points, options contribute to a balanced and orderly market. This, in turn, fosters liquidity, mitigates market manipulation, and promotes a healthier ecosystem for all stakeholders involved.
Crypto Options: A Trend You Can't Ignore
Following the explosive growth of the spot and futures markets within the cryptocurrency realm, the market's natural progression leads to the anticipation of the next wave: the options market. In line with the laws of market development, the cryptocurrency market is poised for this evolution.
Notably, the options market for Bitcoin has experienced rapid growth in recent years. According to Skew, a Coinbase subsidiary that tracks data on cryptocurrency derivatives markets, open interest in Bitcoin options reached approximately $12 billion in total value as of the most recent data. This represents a significant increase compared to the market's size just a year ago. The average daily trading value in the crypto options market is now around $4 billion.
The numbers speak for themselves, indicating that the emergence of the options market in cryptocurrencies is becoming a reality. While derivatives instruments were created later in the traditional finance world, their growth rate has surpassed that of the underlying spot market. This rule is expected to apply to the cryptocurrency market as well. As the entire financial market, including the crypto market, evolves, the trading value in options is projected to reach equivalent or even higher levels than that of other instruments.
Options contracts offer a unique advantage compared to futures contracts. While futures contracts provide opportunities, they also carry substantial risks. On the other hand, options contracts serve as an effective portfolio protection tool that investors prefer to safeguard their assets. Additionally, by allowing participants to predict future price points, options contribute to the stability of the financial market.
Options are a global necessity, as well as a new trend in the financial industry
The demand for options contracts is steadily increasing, as evidenced by the rising trading volume. In 2021, the volume of options trading reached an estimated $33.31 billion, surpassing the volume of futures trading by $4.03 billion. Moreover, the total volume of options traded in 2021 was approximately 350% higher than in 2013. On average, the market traded 39 million options contracts per day in 2021, representing a 35% increase compared to the previous year.
These promising numbers and trends signify the evolution and progress of the crypto market through options trading. Cryptocurrency trading ranges can fluctuate 8–15 times more than traditional markets due to high volatility. Experienced options traders, who thrive on volatility rather than prices, see cryptocurrencies as a promising and golden opportunity for financial success.
As an investor or trader, embracing the power of options in the crypto market is not merely a wise move; it is a strategic imperative. The ability to manage risk, capitalise on volatility, and protect investments is paramount in this dynamic landscape. Options contracts provide the necessary tools to navigate the ever-changing world of cryptocurrencies and emerge as winners in the digital economy.
So, seize the opportunity, delve into the world of crypto options, and embark on a transformative journey that can unlock new heights of success and financial prosperity. The realm of digital assets awaits, and with options at your disposal, you have the power to shape your own destiny.
