The demand for Bitcoin options has skyrocketed, with the average daily open interest on the Chicago Mercantile Exchange (CME) reaching a record $1.9 billion as of December. This marks a significant increase from the previous high of $1.68 billion in April, when Bitcoin (BTC) surged to $30,000 amid the U.S. banking crisis. Currently, BTC is trading at over $42,000, and market participants are eagerly anticipating the potential approval of a Bitcoin spot ETF next month.
Options market overview
Options are financial derivatives that allow owners to buy or sell an asset at a predetermined price on a future date. “Calls” refer to options to buy, while “puts” refer to options to sell. According to CoinGlass data, the total open interest in Bitcoin options across regulated exchanges like CME and other high-volume platforms amounts to $19.6 billion globally. Of this total, 64.5% represents call options, indicating that options traders are optimistic about the short-term prospects of Bitcoin.
Rising open interest in options signals a highly liquid Bitcoin market, especially with the involvement of sophisticated traders. The CME open interest holds particular significance as it reflects participation from institutional investors in the regulated U.S. marketplace.
Increasing CME futures open interest
Over the past two months, CME futures open interest has surged to 113,000 BTC (equivalent to $4.8 billion), making up 26% of the overall market. This growth has resulted in CME surpassing Binance as the world’s largest Bitcoin futures exchange, following Binance’s $4 billion settlement with the DOJ and CFTC last month.
Furthermore, the ProShares Bitcoin Strategy ETF (BITO), the largest U.S. Bitcoin futures ETF, recently reached a new high for assets under management, surpassing $1.47 billion. This indicates that institutional investors are increasingly seeking exposure to Bitcoin, particularly those who are unable to directly buy BTC without the use of a spot ETF.
Aside from ETFs, the market is also pricing in a 66% probability of interest rate cuts by the Federal Reserve in March, a factor generally viewed as bullish for Bitcoin. In addition, the Bitcoin network’s transaction fees recently reached all-time highs due to increased activity. Some analysts interpret high fees as a signal to invest in publicly traded Bitcoin miners, who profit from the fees paid by network users.
