Goldman Sachs Predicts Crypto Options Boost after 6x Growth
Wall Street banking giant, Goldman Sachs believes that with more traditional financial firms getting in on cryptocurrency, the next “hot” thing in crypto space will be more liquid options markets.
Speaking at a Coindesk-hosted panel on Thursday, Goldman’s Head of Crypto Trading, Andrei Kazantsev, described cryptocurrency derivatives as being in the “infancy of product scope” when holding it against the more traditional markets such as equities or foreign exchange. He said:
“We are seeing a lot of demand for more derivative-type hedging. The next big step that we are envisioning is the development of options markets.”
The Bitcoin options market has already seen impressive growth over the last years. While in the first half of 2020, the total value of outstanding Bitcoin options was a little over $2 billion, the most recent data sees a 6x increase. Data from Skew, a Coinbase subsidiary that tracks data on cryptocurrency derivatives markets shows the outstanding contracts to be at $12 billion.
Cryptocurrency options are often uses as a tool to hedge out existing risk and, as Kazantsev explains, this is one of the reasons why the options market has become increasingly liquid. He said:
“There might be equity funds that have an exposure to a stock that has underlying Bitcoin holdings.
In order to hedge that exposure, they might trade futures against that. For them, rather than rebalancing the portfolio dynamically, what they really want to do is hedge for the longer term, and to know the downside on the hedge that they can have. That’s where options become really important.”
The Global Head of Trading added:
“There are more versatile possibilities to hedge specific exposures with options than with futures alone.”
Goldman Sachs was one of the first traditional bankers to offer cryptocurrency trading to its hedge funds- and asset management-clients this year.
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Author: Peter Siu