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Crypto Derivatives Insights

While crypto options are still a growing space and not as robust as the futures and spot markets in terms of liquidity, option prices provide valuable insights into the overall market’s prediction of the future prices of cryptocurrencies. Based on the prices for Bitcoin options, the market is factoring in a probability of 20% that the price of Bitcoin will be above $15k (50% upside from current prices) and probability of 10% that the price will be above $20k (100% upside) by Dec 2019. 

Source: sk3w.co
Source: sk3w.co

For ETH, the market-determined probability that the price will be above $320 (50% upside) is in line with Bitcoin’s at 20% and the probability that the price will be above $440 (100% upside) is in line with Bitcoin’s as well at 10%. This seems a bit odd given that the ETH-BTC correlation since the beginning of last quarter has decreased meaningfully. 

Source: sk3w.co

The cost of liquidity, as measured by the bid-offer spread, has increased steadily since May, partly due to the fact that the bitcoin was on a bullish trajectory over the period, leading to increased demand for BTC purchases and a subsequent widening of the spreads. In fact, the bid-ask spread was the highest on June 27th (1.17% vs 0.5% avg), the day when BTC reached its highest level in 2019 at $14k.  As the price started to consolidate in the high 9k – low 10k range, bid-offer spreads are returning to their historical mean levels right now. 

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