Following a historic crypto market collapse in 2022, investors are rapidly seeking ways to protect themselves from another potential freefall, driving demand for options contracts adn other hedging instruments. Trading volume for Bitcoin options surged to a six-month high this week, according to data from Deribit, the largest digital asset options exchange, signaling a growing anxiety among crypto holders.The dramatic downturn last year – which saw Bitcoin lose nearly 75% of its value and the collapse of major players like FTX – left many reeling and sparked renewed interest in risk management. Now, with Bitcoin rebounding and nearing $30,000, investors are bracing for potential volatility, fearing a repeat of 2022’s devastating losses. This hedging activity impacts not only individual investors but also institutional players increasingly involved in the digital asset space, and could influence the overall stability of the crypto market.
Deribit reported a daily trading volume of over 15,000 Bitcoin options contracts on Tuesday, the highest as November. Put options, which profit from price declines, are particularly popular, with traders buying them as insurance against further downturns. “There’s a lot of fear still in the market,” said Luuk Strijers, Deribit’s chief commercial officer. “People are still scarred from last year.”
The increased hedging activity extends beyond options. Demand for short Bitcoin exchange-traded funds (ETFs) is also rising in anticipation of potential price drops, though these are not yet available in the U.S. Meanwhile, traditional financial institutions are offering crypto-linked structured products with embedded downside protection.
Analysts attribute the renewed caution to several factors, including macroeconomic uncertainty, regulatory scrutiny, and lingering concerns about the stability of certain crypto projects. The recent banking turmoil in the U.S. also contributed to the risk-off sentiment, prompting some investors to seek safe havens.”The market is still very sensitive to negative news,” said Marcus Sotiriou, a market analyst at digital asset broker GlobalBlock. “Any sign of regulatory crackdown or a major project failing could trigger another sell-off.” He noted that the current rally may be vulnerable to a correction if macroeconomic conditions worsen.
