Although cryptocurrency is experiencing a historically high level of volatility, options traders are observing encouraging indicators in the market as a result of the uproar and controversy that engulfed digital-asset lenders and other players in the industry.
Chris Bae, chief executive and co-founder of structured derivative solutions provider EDG and a former trader at Goldman Sachs and UBS, is monitoring open interest and keeping an eye on international exchanges that facilitate trading in options.
According to Bae, “it doesn’t mean that liquidity has reduced drastically.” Many data points point to the market’s increased maturity and the fact that, in the context of the current environment, it’s much business as usual in the options market in particular. Bid-ask spreads appear appropriate, continued Bae.
Of course, there have been a number of hacks, as well as the failure of stablecoin initiatives and the folding of well-known crypto hedge funds. Lenders, in particular, have demonstrated instability over the previous few weeks, with Celsius Network and Babel Finance banning withdrawals and Three Arrows Capital, a significant crypto hedge fund, experiencing liquidity issues. And it’s all happening against a backdrop of less accommodative monetary policy, in which the Federal Reserve and other central banks across the world are frantically raising interest rates to counteract price increases.
The market has undoubtedly changed significantly from the bull run of the previous year. The overall number of outstanding contracts, or open interest, has significantly decreased from recent highs. According to data from Skew, OI is down slightly more than $7 billion from a high of over $15 billion in October 2021. Volume currently stands at little under $600 million, down from an all-time high of over $8 billion in October.
