Institutions are increasingly using proven bitcoin options techniques on alternative cryptocurrencies to protect against price fluctuations and earn additional returns, STS Digital, a primary trader specializing in digital asset derivatives, told CoinDesk.
“Our clientele includes tokenized projects and foundations, investors with large stakes, and asset management companies managing exposure ahead of liquidity events,” said Maxime Seiler, co-founder and CEO of STS Digital. “Increasingly, we also see these participants applying options strategies that were historically used in Bitcoin to the altcoin space.”
Options are derivative contracts that give the buyer the right, but not the obligation, to buy or sell the underlying asset at a predetermined price at a future date. A call option represents a bullish bet, giving the buyer the right to buy the asset at a specified price at a future date. A put option represents a bearish bet, protecting the buyer from falling prices.
The option seller essentially buys insurance against up/down moves in exchange for upfront compensation, called a premium.
Institutions holding bitcoin tend to write options, write BTC calls at levels above the current market price, and collect the premium. This bonus represents additional income on top of their spot BTC holdings.
This covered call strategy has been one of the most popular institutional strategies since the crash of early 2020. Institutions have also used other methods, such as writing puts on Bitcoin to increase their revenue during price increases, buying puts as a downside hedge, and purchasing calls to participate in the bull run.
Now, institutions and other entities, such as founders of projects holding large amounts of altcoins, foundations, venture capitalists, and private actors, are using the same playbook in other cryptocurrencies, or altcoins.
According to Seiler, these strategies are increasingly being implemented in altcoins since the October 10 crash, which saw exchanges forcefully close even profit-making bets (automatic deleveraging) to socialize losses.
“Beyond covered calls, institutions are actively using put writing for yield, downside hedging, and call writing to achieve gains with defined risk. These strategies are increasingly being applied to altcoins as investors seek to manage their exposure without taking on the forced liquidation (ADL) risk that led to the October 10 crash,” Seiler said.
“This is a clear example of why options are a more robust way to express risk in volatile markets,” he added.
STS Digital is a regulated digital asset trading firm that acts as a prime broker for institutional investors, providing liquidity and quote options, spot trading and structured products on over 400 cryptocurrencies.
The breadth of its offering allows the company to meet the growing demand for altcoin options, while centralized platforms like Deribit focus on derivatives for majors like ETH, XRP, and SOL.
The company settles billions in altcoin options volume each year through bilateral transactions. All transactions take place directly between STS and clients, with STS taking the other side of the transaction to provide liquidity and instant execution.
Seiler expects continued growth in options tied to bitcoin and other tokens in the coming years.
“Looking ahead, we see strong and sustained institutional adoption continuing to drive demand for options as a preferred way to manage exposure to digital assets. As adoption has accelerated relentlessly over the past year, periods of consolidation and low volatility are increasingly seen as attractive entry points ahead of the next wave of market catalysts,” he said.
