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Institutional Investors Are Increasingly Using Crypto Options Trading to Hedge Their Bets in Bear Market

In the current bear market, crypto options trading has been a rare bright spot, building momentum even as crypto prices have plunged.

A number of crypto exchanges have noted rising trading volume after reaching lows earlier this year. Options strategies have figured prominently among institutional investors and even miners as they try to weather crypto’s usual volatility and a downturn that could last for months, or longer, despite recent hopeful macroeconomic signs.

More recently, traders have been using the crypto options market to bet on ether (ETH) and hedge positions as the Ethereum blockchain’s hotly anticipated Merge approaches. Panama-based derivatives platform Deribit, which is among the world’s largest exchanges for crypto options trading volume, told CoinDesk demand is surging ahead of the Merge.

ETH options on Deribit spike ahead of the Merge. (Deribit)

Earlier this week, in a disappointing second-quarter earnings report, crypto exchange giant Coinbase (COIN) even alluded to traders migrating to derivatives-focused platforms as a reason for declining trading volume. Coinbase’s dipping volume led to a 30% decline in the company’s revenues – below most analysts’ estimates.

“A larger amount of trading volume took place at offshore exchanges in Q2,” Coinbase said in its report, adding: “The sequential decline in Q2 institutional trading volume was primarily driven by lower market maker volume on our trading platform. These market participants gravitate towards products such as derivatives and financing products, which are areas we’re continuing to invest in but we don’t currently have product parity with offshore exchanges.”

A young market?

Bitcoin options trading accounts for only 2% of open derivatives contracts across exchanges trading the cryptocurrency, whose market cap is about $462 billion, according to structure product provider Enhanced Digital Group (EDG).

By comparison, traditional options trading of stocks accounts for 20% of the market cap of the S&P 500 at the Chicago Board Options Exchange (CBOE), EDG said. “When you…

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