There is a possibility that institutional participation can be increased because of CME’s and Bakkt’s entry but how it will be is unknown. Major exchanges were much hopeful about the future of Bitcoin options at its launch. Afterwards, miners and other corporates involved in the space as a powerful tool for managing risk and volatility. It is thought that these corporate-focused products will move volumes on exchanges and the real action will take place in over-the-counter hedges.
The topic of hedging is coming because of rising demand for options, fastest-growing product segment of crypto market in 2019. The uprising of various derivatives has a significant influence on the growth of the space and crypto derivatives volumes are nascent. Now question is how the options market will serve as the foundation for corporate risk management and in that case the focus remains on assisting entities with natural exposures hedge their risks. If we look at Mexico on the supply side and airlines and shipping on the demand side we can see that these entities rarely traded ‘’listed’’ exchange products directly. A feature of listed options products are more meant for specialists and speculation.
Everyday expiration in the crypto world of these products means traders need to deal with the volatility of the expiry day. A single-day hedge is too short in duration for a corporation. Rather than that, custom-built swaps and option strategies provide a better solution for many in the ecosystem as a hedge. Bitcoin volatility eats at profitability. The pressure to maintain a good balance sheet is growing with major miners having gone public. On the other side, margin compression to push miners to better manages the risk of volatility. As a result, hedging solutions will be adopted by both these companies and lenders.
Corporates require a different product offering and way of doing business and some issues relating to it creates space for hedging products tailor-made for crypto-native firms. For corporate that include miners and others, the excitement lies in what can be done once saturation of underlying liquidity in volatility arrives and it relates to corporate hedging and risk management. Thus, listed options serve as the starting point for services and products.