What will milestone mean for derivatives markets?
2024.11.19 16:11
Bitcoin’s (BTC) potential climb to the $100,000 price level has captivated investors for years. While retail participants often celebrate such psychological milestones, the key impact should come from institutional adoption and advancements in the Bitcoin derivatives markets.
Bitcoin futures aggregate open interest, BTC. Source: CoinGlass
Futures open interest on Bitcoin presently totals 626,520 BTC ($58 billion), a 15% increase in two months, signaling growing interest in derivatives. If Bitcoin reaches $100,000, this open interest would hit $62.5 billion, representing 3.1% of its $2 trillion market cap. This contrasts with the S&P 500, where $817 billion in futures open interest equals only 1.9% of its $43 trillion market cap.
A direct comparison between Bitcoin and S&P 500 futures is unfair, as over 65% of the cryptocurrency trading occurs on crypto-only exchanges such as Binance, OKX and Deribit. This number is expected to reduce as spot Bitcoin exchange-traded funds (ETFs) eventually launch their own futures markets, especially those offering in-kind creation that appeal to institutional investors.
However, regulation alone doesn’t guarantee adoption. For example, the CBOE offered Bitcoin futures from December 2017 to March 2019, only to discontinue the product due to low demand. Recent approvals for spot Bitcoin ETF options signal progress but underscore the need for deeper integration with traditional finance markets.
Institutional adoption: The key to $100,000 and higher
Institutional adoption is critical to translating Bitcoin’s $100,000 milestone into meaningful derivatives market growth. Spot ETF options, for instance, could enable complex strategies like income generation through covered calls or hedging liquidity risks. As institutions grow more comfortable with Bitcoin as a reserve asset, the derivatives market will likely evolve to accommodate their sophisticated needs.
Example of covered call expected return. Source: CME
Futures markets often confuse newcomers, particularly regarding the short positions. Many assume these positions signal bearish sentiment, but that’s not always the case. Strategies like cash and carry, where investors lock in a risk-free profit by selling futures while holding spot Bitcoin, create a large volume of short contracts. These strategies stabilize the market rather than betting on price declines.
A potential game-changing catalyst for Bitcoin’s price surge could come from a shift in corporate governance. Microsoft shareholders recently voted to allocate funds toward Bitcoin, signaling a significant display of intention by influential investors. Even if the plans are not approved in 2025 or are disregarded by the board, the mere act of voting on Bitcoin allocation creates momentum that could pressure other companies to follow suit.
Additionally, Senator Cynthia Lummis’ proposal to convert US Treasury gold certificates into Bitcoin and create a “Strategic Bitcoin Reserve” offers another price catalyst. Her bill includes plans to acquire 5% of the total Bitcoin supply—1 million BTC—to be held for 20 years, further cementing Bitcoin’s potential as a reserve asset.
Related: Why US spot Bitcoin options launch is such a big deal
Bitcoin derivatives markets are a consequence, not a cause
Despite the excitement surrounding Bitcoin’s march toward $100,000, derivatives markets are more likely to react to broader adoption than drive it. Retail and corporate fears of fiat debasement remain the primary motivators pushing Bitcoin higher. This psychological shift—more than any futures product or spot ETF—will ultimately solidify Bitcoin’s role in institutional portfolios.
Lyn Alden’s research reinforces this narrative, showing a correlation between the global M2 money supply and Bitcoin’s price. When governments accelerate monetary stimulus or reduce interest rates, investors increasingly seek scarce assets like Bitcoin as a hedge against debasement.
As a result, a liquid and mature derivatives market will emerge as a consequence, not a cause, of Bitcoin’s price breakthroughs.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
