Deribit has been the most dominant force in the Bitcoin options market throughout 2020. With a 78 percent market share, no other competitor is close to reaching similar levels of volume and open interest.
On May 20, the exchange achieved 100,000 BTC open interest, equivalent to around $970 million based on data from Skew.
According to Deribit and its key investors including Three Arrows Capital, the key catalyst behind its success was having the best product in a relatively niche market.
Dominating a Niche Market Can Be Rewarding
Historically, Bitcoin has seen the majority of its volume come from the spot and futures markets.
Spot refers to crypto-to-fiat or crypto-to-crypto trades with no additional leverage or borrowed capital. In contrast, futures allow trades with leverage of up to 125x in the cryptocurrency market.
Both spot and futures saw a significant increase in trading activity since BTC reached an all-time high at $20,000 about three years ago.
The high leverage of the futures market and the simplify of the spot market were compelling for both professional traders and early entrants.
The options market, however, primarily caters to professional traders. The complexity of options contracts, which are essentially commitments to buy Bitcoin at a certain price at a certain time, narrows down the market to mostly full-time traders.
In a smaller market than spot and futures, Deribit was able to overcome strong competitors like CME, Bakkt, and LedgerX to sustain its dominance.
The Deribit team attributes its rise to one of the top exchanges in the entire cryptocurrency exchange market to its technology.
The team said:
“We are the first mover and the only exchange offering continuous lit order books and portfolio margin. Additionally, we have multiple market makers quoting options. Traders can both buy and sell options, and you are not trading against the house.”
Su Zhu, the CEO of Three Arrows Capital, echoed the sentiment and said “sometimes, you win by just having the best product.”
The Bitcoin Options Market is Now Heating Up
Exchanges that have a fair share of control over the spot and futures markets are preparing to enter the Bitcoin options market.
Most recently, Binance launched Binance Options and it achieved $295 million in daily trading volume a day after it launched.
As other exchanges observe the rapid expansion of the options market, the entry of major cryptocurrency exchanges and service providers into the options space over the medium-term is likely to increase.