'Staying Long': Crypto Options and Market Evolution With GSR CIO

Summary

Markets Daily Crypto Roundup: 'Staying Long' - Crypto Options and Market Evolution With GSR CIO

Release Date: May 14, 2025
Host: CoinDesk (Jen Senasi)
Guest: John Laughlin, Chief Investment Officer at GSR

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Introduction

In this insightful episode of Markets Daily Crypto Roundup, hosted by Jen Senasi from CoinDesk, listeners are treated to an in-depth conversation with John Laughlin, the Chief Investment Officer at GSR, one of the pioneering crypto trading firms established in 2013. The discussion delves into the evolving landscape of crypto options, contrasting it with traditional financial markets, and exploring future trends that may shape the intersection of these domains.

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Setting the Scene at Consensus 2025

Jen Senasi kicks off the episode from Consensus 2025, a prominent cryptocurrency conference. She highlights the unique atmosphere of the event, emphasizing the value of in-person interactions in an industry often dominated by digital communication.

Jen Senasi [01:21]:
"It's great to be here. Irl. Let's get into it."

John Laughlin echoes her sentiments, noting the importance of networking and the vibrant community present at the conference.

John Laughlin [02:02]:
"It's just a great venue for gathering."

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Current Trends in Crypto Options Flows

The conversation swiftly moves to the core topic: the current state of crypto options markets. John Laughlin provides a comprehensive overview of the prevailing trends.

John Laughlin [02:27]:
"With the short-dated, we see a lot of income generation options selling out to kind of one week or one month. Also, with the short end, we see just a lot of kind of noise. Many players just sort of messing around with short-term options without any clear theme at the long end."

He highlights a significant trend where investors are purchasing out-of-the-money call options on Bitcoin, anticipating substantial price increases within the next year. This strategy is likened to buying a "lottery ticket," reflecting high-risk, high-reward betting behavior.

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Comparing Crypto and Traditional Options Markets

Andy Bear, co-host, draws parallels between the crypto options market and traditional financial options, prompting John Laughlin to share his extensive experience in both spheres.

Andy Bear [03:07]:
"What you just described is really different from how investors behave in equities and certainly is absent of things that institutions have to do to manage risk. At what point do those two worlds collide?"

John Laughlin [03:34]:
"There is some call overriding, but it's not nearly as dominant in crypto markets as it is in traditional finance markets. Part of that is just the markets really rewarded people for kind of staying long the upside wing and they believe that it'll continue."

Laughlin points out that traditional finance heavily utilizes index options, especially within credit markets, focusing on indices like the S&P 500. In contrast, the crypto market has yet to adopt such structures extensively. He anticipates that as more institutional players enter the crypto space, they may bring with them the risk management practices prevalent in traditional markets, potentially leading to a convergence of the two.

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The Future of Crypto Options and Market Integration

The discussion shifts towards the integration of crypto options markets with traditional financial instruments. Andy Bear expresses optimism about the development of index options in crypto, referencing advancements like the CoinDesk CD20 index.

Andy Bear [05:02]:
"We’d love to see index options in the United States someday. On the other hand, Coinbase goes and buys Deribit and that's a scale-up maneuver."

John Laughlin [05:45]:
"There's different market participants. If they're doing anything in crypto at all, it's going to be kind of on the CME or the Deribit options. Crypto native players tend to prefer Deribit."

Laughlin explains that while traditional institutions may gravitate towards platforms like CME or Deribit for their options trading, crypto-native entities have a preference for platforms that cater specifically to the unique demands of the crypto market. He also mentions the potential for arbitrage opportunities between different venues, although this requires sophisticated, high-speed automation typically handled by market makers.

He concludes that for the average end-user, prices across platforms remain competitive, allowing traders to choose their preferred venue without significant price discrepancies.

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Conclusion

As the episode wraps up, Jen Senasi acknowledges the depth of the conversation, signaling the end of their time together at Consensus 2025.

Jen Senasi [07:06]:
"John, we got to leave it there. I think we could talk about this forever, but unfortunately we are all out of time."

John Laughlin thanks the hosts, leaving listeners with valuable insights into the current and future state of crypto options markets.

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Key Takeaways

• Short-Term vs. Long-Term Options: There's a notable activity in short-dated options for income generation, while long-term options reflect speculative bets on significant Bitcoin price increases.

• Differing Behaviors: Crypto options markets currently exhibit behaviors distinct from traditional markets, primarily due to the differing participant base and risk management practices.

• Potential Convergence: As institutional investment in crypto grows, there may be increased adoption of traditional financial instruments like index options within the crypto space.

• Platform Preferences: Traditional institutions may prefer platforms like CME for options trading, whereas crypto-native players lean towards specialized platforms like Deribit.

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Notable Quotes

• John Laughlin [02:27]:
  "So with the short dated, we see a lot of, you know, kind of income generation options selling out to kind of one week or one month."

• Andy Bear [03:07]:
  "It's really different from how investors behave in equities and certainly is absent of things that institutions have to do to manage risk."

• John Laughlin [03:34]:
  "There is some call overriding, but it's not nearly as dominant in crypto markets as it is in traditional finance markets."

• Andy Bear [05:02]:
  "We’d love to see index options in the United States someday."

• John Laughlin [05:45]:
  "Crypto native players tend to prefer Deribit."

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This episode offers a deep dive into the nuances of crypto options trading, juxtaposing it with traditional financial markets, and provides a glimpse into how the evolving crypto landscape may integrate more sophisticated financial instruments as institutional participation increases.

Transcript

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[Jen Senasi]

Welcome back to CoinDesk LIVE from Consensus 2025 brought to you by Moonpay, the global leader in crypto payments. I'm Jen Senasi here with my co host Andy Bear. GSR is one of the earliest crypto trading firms. Starting as a market maker in 2013. It has backed builders, provided liquidity and traded across spot derivatives and options. GSR Chief Investment Officer John Laughlin joins this special edition of Markets Daily now. Hello, John.

[Ryan Reynolds]

Hi.

[Jen Senasi]

All right, we got to start with a little bit of a scene setter. We're here at Consensus 2025. We've been talking so much about the markets and what's going on when it comes to institutions. But what have you been up to? A consensus? What have you been enjoying?

[John Laughlin]

Yeah, just walking around and meeting people, connecting with, you know, a lot of people that I know. But it's just a great, you know, venue for gathering.

[Jen Senasi]

Great to see people irl. I know so often we are stuck to our phones. We talk in front of a screen. That's how Andy and I communicate and do the show sometimes. And so it's great to be here. Irl. Let's, let's get into It I want to ask you what are we seeing in options flows?

[John Laughlin]

So with the short dated, we see a lot of, you know, kind of income generation options selling out to kind of one week or one month. Also with the short end we see just a lot of kind of noise. Many players just sort of messing around with short term options without any clear theme at the long end. Primarily the theme we see is, you know, people buying call options on bitcoin out of the money, kind of out one year. So you know, 125,000 strike, 150,000 strike. And that's really looking for a lottery ticket like payout betting on bitcoin repricing higher sometime over the next one year.

[Andy Bear]

It's, I mean John, you and I know each other a long time and you know, you spent decades really understanding the traditional options markets, both equities and indices. What you just described is really different from how investors behave in equities and certainly is absent of things that institutions have to do to manage risk. At what point do those two worlds collide? Right. Because they're both kind of developed options markets. Where do you see them starting to cross streams?

[John Laughlin]

Yeah, so I did spend 20 years trading options and running derivatives portfolios looking for mispricings and equities affects credit and rates. And I think that the main thing that I don't see, I guess there are several things I don't see in crypto yet. There is some call overriding, but it's not nearly as dominant in crypto markets as it is in traditional finance markets. And I think part of that is just the markets really rewarded people for kind of staying long the upside wing and, and they believe that it'll continue. So we don't see that as much in crypto, but maybe as more traditional and institutional players from, you know, tradfi allocators get involved in crypto, they might kind of bring some of those same thought processes and behavior patterns. I think the other thing we see a lot more of in traditional finance markets is index. Right. Like within credit, like the options are primarily on the index than the S&P 500. Really a lot of the traditional asset classes are kind of very focused on index volume first. And we haven't seen that as much obviously CoinDesk and Andy, you're you know, progressing on your CoinDesk CD20 index and options on that. And we have seen some trades, we did, I think the first trade in that. So I would say those are two themes from that we might see develop here.

[Andy Bear]

I hope you're Right. I mean index options as a risk management tool or as you say, they're primary. But you know, even a year ago at consensus last year we didn't have Bitcoin ETF options yet. Now there's a lot in, you know, strategy options trade a lot there, converts. We'd love to see index options in the United States someday. On the other hand, Coinbase goes and buys deribit and you know that's, that's a scale up maneuver. Do you see these the two, I guess the on chain option market and the traditional option markets continue in parallel or does one start to dominate? We're still so early in terrestrial market derivatives trading. So how's that horse race look to you over time?

[John Laughlin]

Yeah, I think there's different market participants. Right. There's you know, hedge funds and traditional institutional allocators. If they're doing anything in crypto at all, it's going to be kind of on the CME or the IBIT options. Crypto native players tend to prefer deribit. There's also paradigm which allows you to get kind of larger block trades done and multi leg option structures. In terms of those merging, I think I might say there's probably a prerequisite for kind of more clear register, more clear regulatory guidance or maybe even legislation from Congress before you really see the CME and deribit kind of merge into the kind of same thing. I think right now you can trade on either. There's good liquidity on both. Arbitrage in between them is something that can be done but it requires a lot of focus and you know, high speed automation that's more of a market making game. So as an end user, I don't think you're getting a significantly different or worse price in one venue for the other and just pick one.

[Jen Senasi]

John, we got to leave it there. I think we could talk about this forever, but unfortunately we are all out of time. Thank you so much for joining us at the desk. We'll see you around the conference.

[John Laughlin]

All right, thank you.

[Jen Senasi]

Chief Investment Officer John Laughlin.

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