CME’s crypto options volume reached almost $1 billion in July, according to CCData.

CME's crypto options volume reached almost $1 billion in July, according to CCData.

Blockchain Industry Experiences Double-digit Growth in Crypto Options Trading Volume

The Chicago Mercantile Exchange (CME), a derivatives giant, has witnessed a significant surge in crypto options trading volume in July. This growth can be attributed to the increasing demand for hedging tools among investors. According to data from CCData, trading activity on the CME rose by 24% to reach $940 million, marking the first increase in four months. Bitcoin (BTC) options saw a 16.6% increase to $734 million, while ether (ETH) options experienced a substantial growth of 60% to $207 million.

This surge in BTC options volume on CME suggests that institutions may be turning to options as a means of hedging their positions due to the lingering uncertainty in the market. Options are derivative contracts that grant the purchaser the right to buy or sell the underlying asset at a predetermined price on or before a specific date. Call options provide the right to buy, while put options confer the right to sell.

CME offers options for bitcoin and ether, based on the exchange’s cash-settled standard and micro BTC and ETH futures contracts. The standard contracts have a size of 5 BTC and 50 ETH, while the micro contracts are one-tenth of 1 BTC and one-tenth of 1 ETH. These options give the buyer the right to buy or sell one cryptocurrency futures contract at a specific price in the future.

Customer business in the options segment picked up in July for the first time in four months. (CCData)

The decline of 4% in the prices of bitcoin and ether in July, coupled with regulatory uncertainty and DeFi hacks, has contributed to increased market volatility. As a result, bitcoin traded more in correlation with stocks and gold during the latter half of June. This scenario necessitated the use of options as a hedging mechanism to manage directional exposure in the crypto market.

While crypto options trading volume soared, the combined activity in CME BTC and ETH futures experienced a cooling effect in line with the global economic slowdown. The futures volume on CME dropped by 17.6% to $39.1 billion, and the total derivatives trading volume (including futures and options) fell 17.0% to $40.1 billion, as reported by CCData.

It is worth noting that the overall trading volume in both spot and derivatives markets on centralized exchanges declined by 12% in July, reaching $2.36 trillion. This figure represents the second-lowest combined volume on centralized exchanges since December 2020, surpassed only by December 2022, according to CCData.

The surge in crypto options trading volume on the CME highlights the growing interest from institutional investors in hedging their positions amidst market uncertainty. The use of options provides investors with the flexibility to protect their portfolios and manage risk effectively. As the blockchain industry continues to evolve, we can expect derivatives trading to play an increasingly vital role in ensuring market stability and facilitating efficient risk management.

Article edited by Parikshit Mishra.