Billionaire investor Michael Novogratz’s full-service crypto merchant bank, Galaxy Digital, will reportedly be expanding its set of services to include digital asset options contract trading.
This, according to TheBlock, which revealed that Galaxy Digital’s latest product offering has been launched after seeing increased interest in cryptocurrency-related investments from the firm’s institutional clients.
One of the main reasons for introducing crypto options contracts is to use them as a hedge against the volatile nature of digital asset prices, the firm’s management noted.
Bitcoin Options May Be Used as a Hedge Against Crypto Market Volatility
Traders may use Bitcoin (BTC) options, which are a type cryptocurrency derivative, to potentially make profits from the high volatility of cryptoasset prices. Experienced traders are able to enter positions which allow them to strategically hedge against risks - such as statistically reducing the overall risk (and losses) of their investment portfolio.
In a manner that’s similar to traditional financial markets, cryptocurrency traders may either acquire “call options” or “put options.” When using a call option, investors may exercise the right to purchase a cryptoasset and put options give them a right to sell their crypto holdings at predetermined rates.
Crypto Mining and Lending Businesses Express Interest in Options Contracts
Yoshi Nakamura, the Global Head of Business Development at Galaxy Digital, revealed that cryptoasset-focused businesses including mining farms and lenders have increasingly been looking to trade crypto options contracts. Currently, Galaxy’s crypto options-related business is “relatively new”, Nakamura confirmed. He also did not provide any specific details regarding the firm’s expectations about the long-term performance of the new product offering.
Commenting on the recent surge in demand in crypto derivatives products, an executive from BlockTower Capital, a leading New York-based digital assets investment firm, said that it was mostly non-crypto companies that were looking to trade crypto options.
Notably, Galaxy Digital is not the only company that offers crypto options. Over-the-counter (OTC) trading desks operated by Akuna Capital and Cumberland (a Chicago-headquartered crypto trading division of DRW Holdings LLC), also allow clients to trade cryptocurrency options.
Bitcoin Futures Have Greater Impact On Crypto Market Than Expected
According to a recent report from J.P. Morgan, Bitcoin futures - which are also a type of crypto derivative - may have a greater overall impact on the digital asset market than we might expect.
The giant investment bank’s report explained that Bitwise Asset Management’s market research had shown that cryptocurrency trading volumes had been greatly exaggerated by many exchanges. If we compare the actual trading volumes of cryptoassets to BTC futures volumes, then the report suggested that we can see crypto futures potentially having a larger role in affecting the crypto market.