Bitcoin Options Volume on Deribit Hits Highest Level in 22 Months as Bank Failures Breed Volatility

Traders seek options to hedge against market volatility as U.S. bank failures triggered sharp repricing of interest rate expectations.

AccessTimeIconMar 14, 2023 at 11:01 a.m. UTC
Updated Mar 14, 2023 at 3:08 p.m. UTC

Trading in bitcoin (BTC) options listed on cryptocurrency exchange Deribit has soared in the wake of U.S. bank failures and resulting market volatility.

Bitcoin options worth $2.4 billion have changed hands on Deribit in the past 24 hours, the highest single-day tally since May 17, 2021, according to data tracked by Amberdata. The number of contracts traded in the past 24 hours stood at a record high of 99,195 BTC at press time. The 24-hour notional volume in ether options totaled $948 million as of writing, the highest since November.

On Deribit, one options contract represents 1 BTC and 1 ETH. The exchange controls more than 80% of the global crypto options market. Options give traders the right to buy or sell the underlying asset, in this case, bitcoin, at a specific price, known as a strike, by a stated date. Call options give the right to buy, while put options give the right to sell.

Three U.S. banks have collapsed in less than a week, injecting volatility into financial markets and forcing both crypto and traditional markets traders to seek hedges via options. Volume in options tied to Wall Street's fear gauge, the VIX index, soared to a four-year high last week, according to Reuters.

Bitcoin initially came under pressure after Silicon Valley Bank shut down on Friday but picked up a bid over the weekend. Prices have risen nearly 25% since late Friday, with prices gaining 9% in the past 24 hours, as the banking crisis has weakened the case for continued monetary tightening by the Federal Reserve.

Bitcoin's seven-day annualized implied volatility, the market's expectation of price turbulence in the short term, rose to a four-month high of 90% early Tuesday. The 30-, 60-, 91- and 180-day gauges have also ticked higher, indicating increased demand for options. A similar pattern is observed in the ether options market, where the seven-day implied volatility rose to a two-month high of 77% early Tuesday.


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Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.

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