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Bitcoin Options Trading Falling: Is That Good or Bad?

In recent weeks markets around the world have been going nuts. Stocks have plummeted, safe havens like gold and silver have also dropped, oil continues to sink, and cryptocurrencies are joining them. It seems like investors and savers around the world are eschewing any sort of investment or hard asset and fleeing for the safety of cold, hard cash.

It isn’t just cryptocurrency prices that have seen declines – cryptocurrency trading too is drying up, particularly options trading. Bitcoin futures have been trading for years, but Bitcoin options are a relatively new product, at least the licensed products in the US. But options exchanges CME and Bakkt have seen a precipitous decline in the US.

Bakkt, in particular, has been hit hard. It was first affected by CME opening up its operations, which largely sucked the life out of Bakkt. Bakkt has now gone weeks without an options trade, with options trading on the exchange being largely dead since mid-January when CME went active.

But CME hasn’t done too well either, as recent days have seen total options volume as low as $80,000, the lowest ever. That’s a far cry from the many multi-million dollar days that have occurred up to now. At a time when Bitcoin’s price volatility is increased right alongside the volatility of many other investment assets, why is options trading collapsing?

Some analysts speculate that the drop in options trading is due to institutional investors turning to Bitcoin and cryptocurrencies as sources of liquidity, assets to sell to drum up quick cash. That could be one reason, as that also explains the drops in gold and silver, which as safe havens would have been expected to rise in price. But we saw much the same pattern with them in 2008, as they lost value during the worst part of the crisis (although not as much as stocks) before skyrocketing in 2009 and beyond.

Assuming Bitcoin follows that same pattern, the current price drops shouldn’t be a concern. Nor should the drop in options trading be concerning either. While institutional investors may be selling Bitcoin to drum up cash, individual investors continue to hold onto Bitcoin, trusting that their Bitcoin investments will offer meaningful returns once this current crisis is over.