DrawBridge Lending on Bitcoin Options

The growth of options and other derivatives in the digital asset space points towards a maturing asset class.  Despite Warren Buffet’s long ago admonition that derivatives are “financial weapons of mass destruction,” options have long been a standard tool deployed by professional traders and sophisticated investors. Seeing bitcoin option open interest blossom is a clear sign that the traditional players are coming to the space and bringing their toolboxes with them.


Generally, an expansion of open interest in futures coupled with an advance in price is a bullish sign as new money enters a market establishing new positions at increasingly higher prices.  However, the high level of open interest in bitcoin options referenced in this Cointelegraph article may be a sign of something else at work: the recent bitcoin halving (or do you say “halvening?”).  Speculators and hedgers alike were looking to take positions going into the halving and the June contract afforded the best opportunity.  Moreover, a large slug of open interest is clustered away from the current at-the-money options. For these reasons, it would follow that the expiration of those options will have little effect on current price action.


Options trading comes with considerable risk.  In addition to price action, credit plays a huge role in understanding the risk.  Properly vetting counterparties as well as exchanges is paramount.  Option traders should consider all factors from balance sheet, default waterfall, and strength of the parent when choosing a counterparty or exchange.  There is nothing worse than making the correct call only to not be able to collect because the counterparty defaulted.


To address those risks, regulators have erected speed bumps to ensure individuals who trade options and other derivatives are well informed of the risks and have the wherewithal to weather adverse results.  Beyond that, however, long term success in the option space requires an understanding beyond the basic mechanics of a call or put. At DBL, we offer our years of experience and expertise to help guide and advise our clients in this regard.  Do your own research and rely on knowledgeable experts to help you navigate this exciting and growing corner of the crypto universe.


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About the Author:

Jason Urban is CEO of DrawBridge Lending / DBL Digital. A seasoned financial industry veteran with an MBA from University of Chicago Booth School of Business and a BS/BA Finance and Marketing from Georgetown University, Jason specializes in market making, arbitrage, and capitalizing on market inefficiencies. He holds Series 3, Series 7, and Series 24 registrations and is quoted in several publications as an expert in cryptocurrency investing and lending.