The demand for hedging tools among investors helped the world’s largest derivatives exchange, Chicago Mercantile Exchange (CME), report double-digit growth in the volume of crypto options trading in July.
Data recorded by CCData show that trading activity increased 24% to $940 million, marking the first gain in four months. The volume of options on bitcoin (BTC) increased by 16.6% to $734 million, while the volume of options on ether (ETH) increased by 60% to $207 million.
According to CCData, “the rise in BTC options volume on the CME suggests that institutions may be hedging their positions with options as market uncertainty persists.”
Options are derivative contracts that grant the buyer the option to buy or sell the underlying asset at a defined price on or before a given date.The right to buy is granted by a call option, while the right to sell is granted by a put option.
The buyer of a CME option has the option to purchase or sell one bitcoin futures contract at a certain price at a later date. Based on the exchange’s cash-settled standard and micro BTC and ETH futures contracts, CME provides bitcoin and ether options. 5 BTC and 50 ETH are the sizes of standard contracts. One tenth of a bitcoin and one tenth of an ether make up the micro ones.
Both bitcoin and ether experienced 4% declines in July as investor excitement over the prospective introduction of a bitcoin exchange-traded fund waned, regulatory uncertainty increased, and hacking into decentralised financial systems shook confidence. It was justified to use options to hedge directional exposure in the cryptocurrency market since bitcoin traded more often with stocks and gold than it did in the second half of June.
In accordance with the general slowdown, the combined activity in CME BTC and ETH futures decreased. According to CCData, CME futures volume decreased 17.6% to $39.1 billion, while derivatives trading volume overall (including futures and options) decreased 17.0% to $40.1 billion.
The total amount of cryptocurrency traded in spot and futures on centralised exchanges dropped by 12% in July to $2.36 trillion. The only month to have a lower combined volume on centralised exchanges since December 2020 was December 2022, according to CCData.