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Cryptocurrency derivatives showed explosive growth in 2020 as nearly $ 2 billion Bitcoin options expired on Christmas Day.

2020 was the most important year for the digital derivatives market so far. Both Bitcoin (BTC) and Ethereum (ETH) derivatives have grown steadily over the year, with futures and options products available across exchanges such as the Chicago Mercantile Exchange, OKX, Derbit and Binance.

On December 31, open interest in Bitcoin options reached an all-time high of $ 6.8 billion, three times the open interest seen 100 days earlier, indicating the speed at which the cryptocurrency derivatives market is growing amid this upward trend. .

The upward trend has brought many new investors into the market amid the uncertainty plaguing traditional financial markets due to the ongoing COVID-19 pandemic. These investors are looking to hedge their bets against the market through derivatives of underlying assets such as Bitcoin and Ethereum.

Institutional investors bring about the major change

While there are many factors driving the growth of cryptocurrency derivatives, it is safe to say that they are mainly driven by the interest of institutional investors, bearing in mind that derivatives are complex products that are difficult for the average investor to understand.

In 2020, a variety of institutional entities such as Diamond Mutual and MicroStrategic showed significant interest by purchasing Bitcoin either for their reserves or as investments in treasury. Locke Strikers, chief commercial officer at the cryptocurrency exchange Derbit, explained to Cointelegraph: 

Striegers also emphasized that as a platform, Derbit sees institutional investors entering the field of cryptocurrencies using trading tools they are familiar with, such as forex and options, resulting in explosive growth in open interest throughout 2020.

The Chicago Mercantile Exchange is also a prominent marketplace for trading options and futures, especially for institutional investors, as the Chicago Mercantile Exchange is the largest derivatives exchange in the world across asset classes, making it a familiar market for institutions. It even recently overtaken OKIX as the largest Bitcoin futures market. A spokesperson for the Chicago Mercantile Exchange told Cointelegraph: 'November was the best month for average Bitcoin Futures Trade Volume (ADV) in 2020, and the second best month since launch.'

Another indicator of institutional investment is the growth in the number of large open interest holders (LOIHs), for bitcoin futures on the Chicago Mercantile Exchange. Large open interest holders are known as investors with at least 25 Bitcoin futures contracts, with each contract consisting of 5 Bitcoins, making the limit for large open interest holders equivalent to 125 Bitcoins - more than $ 3.5 million.