What Bitcoin and Ether’s Options Tell Us About Their Maturity

Higher options volume relative to spot is a sign of a developed market and can help with price discovery.

Insights, news and analysis for the professional investor By Marc Hochstein, Executive Editor November 7, 2021 Sponsored by     Bitcoin (BTC) - $61,538 Ether (ETH) - $4,520 Prices as of 11/07/21 @ 00:00 UTC If you were forwarded this newsletter and would like to receive it, sign up here.  Some fearless predictions for 2022 from a webinar I hosted Thursday with three crypto luminaries:   Mike Belshe, CEO of custody specialist BitGo: "We'll see a Fortune 500 company with its own token."   Michael Moro, CEO of Genesis Global Trading (like CoinDesk, a subsidiary of Digital Currency Group): "I would expect five additional countries around the world to pull the El Salvador," in the sense of acquiring bitcoin.   Jeremy Allaire, CEO of stablecoin operator Circle: "Multiple Group of 30 countries will hold bitcoin on their central bank balance sheets. … You'll see some of the biggest retailers in the world accept stablecoins as a payment option."    Fanciful? We shall see. Place your bets on Polymarket, Hedgehog, Gnosis or Augur ... while you still can.    If you missed the webinar on "The Future of Institutional Crypto Investments," a replay will be available in a few days on CoinDesk's research page.   In this week's Briefing column below, Lawrence Lewitinn offers a very Brady explanation of options market data for bitcoin and ether. Learn and enjoy.    – Marc Hochstein, executive editor A message from Crypto.com Buy bitcoin and 100+ cryptocurrencies with 20+ fiat currencies. New users can enjoy 0% credit/debit card fees on all crypto purchases made in their first 30 days. Download the Crypto.com App now. The Briefing In one of the most iconic scenes in American TV history, Jan Brady complains to her parents about all the attention her sister receives. "Marcia, Marcia, Marcia … I'm tired of being in Marcia's shadow all the time," Jan whines to her mom on season 3, episode 10 of "The Brady Bunch" in 1971.   One could almost hear ether (ETH) kvetch in much the same manner about bitcoin (BTC).   After all, ether is up around 500% since Jan. 1 while bitcoin has only doubled in that time. Yet it's bitcoin that is legal tender in one country and has several futures-based exchange-traded funds (ETFs). And then some.   While they are in the same asset class, comparing bitcoin to ether is tantamount to comparing apples to oranges for those with more than a cursory understanding of crypto. It turns out the derivatives markets agree about the difference in at least one subtle way: the relative volume of ether options to the spot market compared to that of bitcoin.   That matters because higher options volume relative to spot is a sign of a mature market and can help with price discovery.   To be sure, both ether and bitcoin have shown astounding growth in both their spot and options markets over the past year. In October 2020, ether spot trades averaged roughly $93 million per day combined for seven major exchanges; a year later, that daily average was $1.6 billion, according to figures compiled by data provider Skew. Meanwhile, options daily volumes jumped to $335 million from a mere $23 million the previous year.   [The seven bitcoin and ether spot exchanges tracked in this piece were Bitstamp, Coinbase, FTX, Gemini, ItBit, Kraken and LMAX Digital. While exchanges such as Binance were not included, one can still get a sense of the relative size of each spot market.] Bitcoin's market was even bigger to start. The October daily spot volume average in 2020 was $395 million while the options market was $206 million. Fast forward 12 months later and it was $2.2 billion and $989 million, respectively.   Still, when it comes to growth, ether was the more impressive of the two. Its spot market grew roughly 16x in one year and its options market nearly 15x. Bitcoin's numbers gained "just" 5.7x and 4.8x, respectively. That's a dream for any other market but small potatoes compared to ether.   Yet when looking at those numbers, the relative size of each currency's options market to its spot market stood out. Read the full column here.   – Lawrence Lewitinn   A message from Copper Copper provides a gateway into the cryptoasset space for institutional investors by offering custody, prime brokerage, and settlements across 250 digital assets and more than 40 exchanges. We are committed to providing flexible solutions that adapt to the changing cryptoasset space, while enabling far greater transparency, control, and security for asset managers.    To learn more visit copper.co/interest   Crypto is on the rise. Crypto knowledge, however, is stuck on the runway: It turns out that 96% of U.S. adults can't pass a test on crypto basics. Throughout November, Crypto Literacy Month aims to change that. Brush up on your crypto knowledge! Chain Links Eric Adams, New York City's mayor-elect, will take his first three paychecks in bitcoin and looks to make Gotham the center of the crypto industry. TAKEAWAY: Mayors, congresspeople and senators have begun stepping forward in support (and opposition) of cryptocurrencies. The industry has moved to the forefront of discussion throughout politics, finance and regulation.    Galaxy Digital's assets under management swelled 40% in October, as interest in crypto assets grew in Canada. TAKEAWAY: While the world was focused on the newly launched bitcoin futures ETF in the U.S., Galaxy Digital saw large inflows into its spot ETFs. The increase in AUM is heavily correlated with the price appreciation in the underlying crypto markets, with ether returning more than 40% over the month.    Blockdata reported global venture funding for cryptocurrency and blockchain startups hit $6.5 billion during Q3 alone. TAKEAWAY: The venture capital industry has doubled down on its bet on the crypto space with firms in the U.S. showing the most interest. Showing little interest in 2020, venture capital inflows seem to be a lagging indicator of crypto asset appreciation   Genesis Global Trading reported that bitcoin interest fell during Q3, as exchanges moved away from leveraged offerings and institutions looked into ether. TAKEAWAY: A growing interest in ether and DeFi could signal we are in the later stages of the crypto cycle or that institutions see potential in the economy built on top of Ethereum. Yield opportunities in DeFi were likely a driving force of interest in the space.    Square's Cash App generated $1.8 billion in bitcoin revenue during Q3. TAKEAWAY: Bitcoin transaction revenue made up over 46% of Square's total revenue during Q3, showing how important crypto assets have become to the company. Previously non-crypto companies, such as Square, Robinhood and Microstrategy, have enjoyed great financial success pivoting to and accepting the cryptocurrency industry.    -- Teddy Oosterbaan     CoinDesk's "Most Influential" recognizes individuals who've had a big impact on the cryptocurrency and blockchain industry in a calendar year. Chosen by readers and editorial staff, the list features 50 people from across the space, including entrepreneurs, traders, coders, regulators, celebrities and the odd surprise. To have your say on who should make this year's list, check out the form here. The results will be announced on Dec. 6, 2021. Podcast episodes worth listening to: Opinionated DeFi Needs Clear Regulation; Or Does it? Feat. PaperImperium A lobbyist, educating Congress and regulators about MakerDAO. The Breakdown Central Banks Sending Worrisome Signals About the Economy What the inversion of the yield curve is telling us. Money Reimagined NFTs: Tools for Art, Advocacy and Activism The great phenomenon of NFTs is sweeping through society. On Purpose Getting Ahead in Crypto Education, With Amber McLeod To create the best possible relationship between advisers and their clients, an in-depth understanding of crypto is required.   Odd Lots (Bloomberg) Citi's Matt King on Why Inflation Isn't Transitory and the Fed May Induce a Recession Stock investors are happy. That might not last for long   Crypto Long & Short A newsletter from CoinDesk See Previous Editions Copyright © 2021 CoinDesk, All rights reserved.  250 Park Avenue South New York, NY 10003, USA Manage your newsletter subscriptions  |  Unsubscribe from all CoinDesk email