Bitcoin’s Derivatives Market Is Changing Spot Price Formation

Initially, Bitcoin (BTC ) was envisioned as a “simple” currency, with its fixed supply cap designed to make it a superior alternative to both fiat currencies and gold. But as the years passed, the way to use Bitcoin and the market for Bitcoin became more and more complex.

For example, we moved from directly hosting Bitcoin independently to crypto exchanges holding billions of cryptocurrencies in custody. And a whole new array of Bitcoin financial tools appeared: ETFs, futures, options, etc.

This means that the way money flows in and out of Bitcoin markets has been radically altered, and so has the price discovery mechanism. This was recently confirmed in a research paper published in Finance Research Letters¹, under the title “Bitcoin option expiration, gamma exposure, and intraday price reversals”.

Analyzing Deribit Bitcoin options, it found that daily option expiration can create short-lived spot-price reversals. This means that Bitcoin options are increasingly important in the short-horizon price formation in Bitcoin markets, something that cryptocurrency traders and investors will now need to take into account.

What Are Bitcoin Options?

Bitcoin options are financial derivatives that function similarly to other options. They give a trader the right, but not the obligation, to buy or sell Bitcoin at a set price within a specific timeframe, in exchange for a premium paid to the seller of the option.

This allows traders to speculate on price direction or hedge risk, with the maximum loss capped at the premium paid.

Call options are used when a trader is bullish and expects the price to rise. They give the right to buy Bitcoin at a set price (the strike price) before the contract expires.

Put options are used when a trader is bearish and expects the price to decline. They give the right to sell Bitcoin at a set price (the strike price) before the contract expires.

There are many ways someone can get access to Bitcoin options:

• Crypto-Native Exchanges, on platforms like Deribit, the one analyzed in this study.
• Traditional Markets: It is possible to trade cash-settled options on Bitcoin futures via the CME Group.
• Regulated Stock Exchanges: It is also possible to trade options on spot Bitcoin ETFs through standard brokerages on Nasdaq.

What Did the Study Find?

The study used high-frequency transaction data on Bitcoin options from the Deribit crypto exchange for 2 years, in the period from 1 January 2021 to 31 December 2023.

“Aggregated across all strikes and moneyness categories, approximately 14,000 option contracts expire on an average day, corresponding to an expiring notional open interest of about $500M on Deribit.”

As the Bitcoin market is fragmented across multiple trading venues, the researchers also compared trading activity in Deribit perpetual futures with activity in the spot exchanges used to determine the Deribit settlement price: Binance, Bitfinex, Bitstamp, Bittrex, Coinbase, FTX (before its collapse), Gemini, HTX Global, Kraken, and OKX.

Analyzing these data, the researchers found that the period of option settlement directly impacts Bitcoin price at the exact moment before options expire. It reflects that buying and selling of Bitcoin during this period is strongly driven by the effect of option trading and settlement, more than any news-related effect regarding Bitcoin.

“A downward price move is observed for the top decile of open interest starting about one hour before option expiration. The price then reverses and stabilizes within the next 90 min around the initial 7 am price level.”

Looking deeper, the researchers also found that this correlation was statistically significant only when options open interest reached the top decile.

This means that the more speculative activity around options, the more they impact price discovery.

“This result suggests that price reversals around Bitcoin option expirations are concentrated on days with sufficiently large at-the-money open interest, specifically, when it exceeds the 90th percentile.”

Another discovery was the systemic negative return of the Bitcoin option markets. In practice, this means that the average option trader loses money participating in this market, in large part because many options end up expiring worthless. So the benefit is transferred via the options’ premium to the actors creating and selling the options. In total, option expiry effects imply wealth transfers of about $50M per year.

Implications For Bitcoin Traders & Investors

For a long time, Bitcoin trading was shaped by perception, crypto news, and the ups and downs of speculative activity.

This has been changing as more complex financial products emerged and mainstream financial institutions have warmed up to Bitcoin and cryptocurrencies & blockchain technology in general: ETFs, futures, options, perpetuals, bitcoin treasury companies, etc.

As with any other financial market, this directly impacts price discovery, as buying and selling bitcoin can now be dependent on characteristics of such a derivative: expiry date, contract structure, etc.

As such, this study proving that daily option expiration is shaping short-horizon price formation in Bitcoin markets should not come as a surprise.

This has serious implications for regulated investment products that rely on spot-market reference prices, as the spot price is now reactive to when options expire. As such, it is likely best for these products to consider the spot price outside these hours, as it will be less affected.

Another effect concerning all investors in Bitcoin is that its price action during periods of high volume of options trading is likely less organic and more driven by option expiry: price formation is no longer driven only by spot demand or macro sentiment; derivatives positioning can matter, even over intraday windows.

Lastly, as with other Bitcoin derivatives like futures, the growth of Bitcoin option trading can absorb some of the money flowing into the space and reduce the volume of buying and selling of actual Bitcoin, draining liquidity to these secondary markets.

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Study Referenced

^{1. Dustin Weiss, et al. Bitcoin option expiration, gamma exposure, and intraday price reversals. Finance Research Letters. Volume 107, September 2026, 110340. https://doi.org/10.1016/j.frl.2026.110340}