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The Wolf Of All Streets
Traders Bet On Bitcoin Hitting $200,000! Crypto Options Are Booming | Luuk Strijers, CEO Of Deribit
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Traders Bet On Bitcoin Hitting $200,000! Crypto Options Are Booming | Luuk Strijers, CEO Of Deribit
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- [00:00]
Interviewer
Where do you think we stand here? Sort of coming into the beginning of 2025.
- [00:04]
Luke Stryers
So I don't think the perfect scenario will just happen. I think the perfect scenario is options are totally different beasts than perpetuals. If you buy long options, you can't get liquidated. So it's a totally different way of trading.
- [00:19]
Interviewer
Can you just give like a very basic idea of how your average person who wants to understand options positioning and.
- [00:26]
Luke Stryers
What'S coming, at least on there, it's. You have, let's say dollars, you have USDC and you buy BTC and you sell the BTC future in a certain expiry. What the price level will be, I don't know. I never do any predictions. But it will be higher than it is today. That's my personal conviction.
- [00:44]
Interviewer
In the United States, the options market is much bigger than the underlying spot market for most assets. But this still really is not the case in crypto. So spot drives crypto markets, especially in the United States. But options are maturing and futures and are very popular all over the world. Nowhere more than on Deribit, which controls roughly 85% of all of the options worldwide. Of course, it is not available to Americans. I sat down with their CEO Luke Stryers to discuss the plans for America, if there are any. Why the options market is so large in other places other than here and what's coming in the future in the options and futures market as they mature and start to get adopted more by larger institutions. This is a conversation packed with endless alpha. You do not want to miss it.
- [01:34]
Luke Stryers
That's dope.
- [01:48]
Interviewer
Let's do so. Last time I checked the numbers, I believe deribitation had about 85% of the entire crypto options market locked down. Is that still roughly accurate?
- [02:01]
Luke Stryers
Roughly depends on how you measure volume or open interest. But it's, it's about that depending on who you include. But let's say cefi markets, excluding DeFi. About that. Yes. Yeah. So it's, it's an amazing number.
- [02:16]
Interviewer
It's an absurd number. And you're also, when you consider who you're competing against, it makes the number seem even crazier. Right. I mean obviously you have crypto natives. I would imagine the binances and the OKXs are the other sort of lead competitors in crypto. But you're also competing with sort of legacy options markets like the cme. Right. We're talking about the Chicago Mercantile Exchange where basically leads probably every other market in the world in options. Correct.
- [02:45]
Luke Stryers
Massive. In bitcoin futures. So bigger than anyone Else but tiny in options. So yes, we compete with whoever for many years already, including cme, including a variety of local exchanges, global crypto exchanges, defi solutions, et cetera. But yeah, going strong.
- [03:04]
Interviewer
Still, I don't want to take for granted that the audience understands exactly what you do. Maybe you can give us the very quick TLDR on what Bitcoin and Ethereum future futures and options look like, how they're offered specifically on Deribit and which are the most popular products.
- [03:22]
Luke Stryers
Sure, yeah. So we, we are Deribit. We started in 2016. Sorry we, we were one of the first, or actually the first in, in options, but one of the first overall. So we, we've been around quite some time and we started immediately by offering options in a time where no one cared essentially volatility was too high and no one knew how to price it. So our founder was, was heavily convinced that the options were at least our game plan. But back then it was too early. So we launched the perpetual and over time in 1819 options started getting more traction. Market makers started becoming active, prices narrowed, books were deeper and properly priced. And at the same time you saw let's say the institutions coming. But it weren't the massive size of institutions, but it were firms allocating some, some size to crypto so existing firms setting up a game and then the starting trade options. So if you fast forward to today, we are the undisputed number one. We were already undisputed number one back then, but the market was tiny. But now in November we reached like peak volumes. We traded in the over a month, we traded 160/plus billion dollars out of which typically 2/3 approximately is options and out of the options it's again depending on the emotions of the day, it's 2/3 bitcoin. So 2 years ago bitcoin and eth, those are the days of eth merge and the flipping and those stories, you remember those ETH was challenging bitcoin, but nowadays it's obvious that BTC is the big winner and the same is visible in, in volumes and open interest. So so we are derivatives platform, we don't do a lot of other things. So we are purely focused on derivatives and we have a small, let's say 1% of our business is Spot, which is free. So spot is simply auxiliary to our derivatives offering and we have a narrow product shelf. So as mentioned, Bitcoin is 2/3 of it. ETH would be the other component. So that's the options component which is 2/3 of the business and the Rest of the business is mixed with perpetuals as well as dated futures. We are after seeing me the number one in dated futures, so much bigger than Binance okx. And the reason it goes hand in hand with options. So the options market makers tend to hedge with futures. So if you're big in options, you're big in future. So that's like common sense. Our perpetuals product line consists of BTC and ETH ETH inverse perpetuals as well as linear perpetuals. And we have around 15 or so. This narrower product self makes us more unique, more what we call sophisticated. We target sophisticated traders, institutions, people with experience, and we are less suitable for the masses. So if traders are completely fresh and new to the space, they typically don't become our clients. We have a smaller client group, but more active. 80, 85% of business is institutional. So we target all the large firms in the space. And 15ish percent is retail. So that's, that's us in a nutshell. We move to Dubai, I'm based in Dubai and the platform is headquartered here. We got a VARA license. VARA is the regulator in Dubai of covering spot and derivatives. And we plan to expand the derivatives license space with multiple global licenses. But the core is the mine.
- [06:59]
Interviewer
We talk about institutional adoption of crypto and trading, but I think there's a lot of confusion as to what those institutions are. Right. In the United States, when we talk about institutional adoptions, people get excited about MicroStrategy adding Bitcoin to the balance sheet. But I have to imagine at least the early adopters of Deribit and you can talk to who's using it now, but were probably crypto native hedge funds who are also institutions at the beginning. Correct. And who's using it now? Is that where the bulk of your volume is coming from? I guess define the institution that's using Deribit.
- [07:34]
Luke Stryers
Yeah. So the institution can be many. So we typically don't disclose names, but.
- [07:40]
Interviewer
All the big names, non specifically, I just mean the bucket.
- [07:42]
Luke Stryers
Yeah. So all the big names you read about on the various portals, they typically trade with us. So let's say institutional adoption step one is if they're willing, you buy bitcoin. So some of them like MicroStrategy do, some of them are freight. So that would be step two, they buy like a wrapper, like the etf. So it would be IBIT space. Step three would be capital efficiency. So if you have a thousand bitcoins, a million dollar exposure, what do you do with it? What happens if the election Goes the other way. What happens if, whatever those scenarios you can imagine, you hedge. So that's what we, we typically see large institutions, asset managers, portfolio managers hedging on there a bit. The other side would speculate so if, if Trump would win, what could happen to the price? Could it go to a hundred thousand, two hundred thousand dollars? Etc they position themselves in a more capital efficient way. So that's, that would be speculators. Then there would be firms that generate income in crypto. So miners for example, exchanges that need to pay the bill in in dollars, euros, whatever tomorrow and next week and they don't know what the price will be. So they sell their income, their future income. They know that they will most likely mine, let's say one BTC the next month. They want to make sure that the BTC they mine generates whatever X dollars in in income. So they would hedges. That's the typical type of exposure. Some of them are traded directly so the people that have direct access but there's also a few firms that act as intermediary like inter dealer brokers which sell products otc. So for example a large firm that has a client we don't have, they sell a thousand contracts and this firm would hatch on there. So that's also quite a decent part of the flow coming from Asia, coming from all parts of the world essentially which use deribit as a hedge to offload risk. So we are pretty much seen as a repository of volatility which might be complex, but you should see us as the way to overload positions either directly or indirectly. And everything is centralized with us and that's our game plan. So you mentioned we have 85% of the market and numbers wise spending on of course on the price of Bitcoin. That would be like $40 billion of exposures. It's really sizable which hopefully keeps growing. It grows in dollars. That's easy. If the price doubles, of course the notional open interest doubles. But we also focus on growing the number of contracts which is like the organic growth. So the market is getting bigger and we all expect this trend to continue. So today the market is whatever certain size and tomorrow it will be bigger because family offices, hedge funds and all of those guys will come in the end. The investment banks will come. So if we talk about institutional adoption, Joanna is a question that hasn't happened. So regardless, whoever tells like a very bullish story, the real size is not there yet. The real size is buying the etf but also not, not massively but they are doing it. But it will happen.
- [10:50]
Interviewer
So the bulk of ETF volume is retail, that's just a fact.
- [10:56]
Luke Stryers
And they might buy it via an investment bank or so, but it's still in the end is retail buying. But at some point they will. So firms like BlackRock pushing Bitcoin as a part of portfolios, a certain percentage as a hedge for better diversification. At some point this mantra gets absorbed by the wealth advisors, et cetera, and it becomes normal. And once that happens, these firms will also do more and more size. There will be more structured products, there will be more wealth desk executing, et cetera, et cetera. And of course that paves the way for way more derivatives exposure for us coming from years ago where the exposure was this and we were already looking at peak volumes which are really impressive. I think a few years from now, if you look back at today, it will be many more small. But if you look at developed markets in the US, multiple markets in Asia, India, etc. If you look at the size of the spot market, the futures market, etcetera versus the rest of the overall trading equities, etcetera. There's a ratio and these ratios differ greatly between countries. But if you look at crypto, it's tiny. So even though we are impressed When I mentioned 40 billion open interest, it is size. But there's nothing compared to what can be done if markets evolve more mature.
- [12:21]
Interviewer
Yeah. So take for example Tesla stock or MicroStrategy stock or any individual equity that has options offered on it. How large is the bitcoin option market versus spot? Bitcoin versus your average very popular equity versus the options activity on that specific.
- [12:38]
Luke Stryers
Stock in the U.S. options would be bigger than spot. So spot trades, what is it, 112 trillion a month. And, and the options is like I mentioned before, we trade, let's say in our best month, we trade 100 billion or so.
- [12:53]
Interviewer
It's, it's still a tenth.
- [12:54]
Luke Stryers
Yeah, yeah, yeah, but still. So it can be in our best month, the ratio spot will also be much higher. So the, the, the real. So we're then talking about one one and a half. That's like a normalized value. November was of course extraordinary, so the ratio will be lower. So there's this tremendous growth. However, the, the one thing a lot of people overlook is that let's say Tesla or whatever, those kind of stocks, they are excessive. So, so 50 plus percent of the market is retail in the U.S. so these options trades, there's a lot of it is traded by retail.
- [13:26]
Interviewer
Yeah.
- [13:26]
Luke Stryers
So perpetuals in the US or or multiple developed markets don't always exist. So Tesla perpetuals are not there. Hence if US retail, or any global retail for that matter wants to trade, in this case Tesla with leverage, they typically use options. So options is the go to instrument to expose to get leveraged exposure. So in a perfect world where perpetuals exist for all products, part of the options flow would not exist, but it would be perpetual flow. So often people make the mistake in simply looking at the potential options saying look, the ratio is 50x hence the future will be 50x today. I think the future will be 40x today or 30x a day. Still a massive upside. Options are totally different beasts than perpetuals. If you buy long options you can't get liquidated. So it's a totally different way of trading. It enables way more precision than a perpetual. You can pick the strike, you can pick the expiry, you can sell let's say gold spreads, wood spread, that kind of stuff so you can get more tailor made exposure. If you are a bit more sophisticated, you can trade volatility which means that the actual prices, etc. Matter less because you trade like a derived instrument. Options have an enormous additional layer to overall financial markets. So if that's fully unlocked by all of these people that know what to trading, the market will grow significantly. Why is that almost a given? Because typically the people that are still to come are not the crypto savvy, the crypto native investors. These are institutions that trade whatever Tesla today. They trade global products, they trade fx, they trade any, any traditional market product and they gladly become converted and they will change their perhaps perception slightly and, and start including Bitcoin derivatives in their overall allocation. And that means that they will simply do the same stuff that they do with the rest of their portfolio. 99% of the it's all the same. So what will they trade? Options and futures? They will position for events, they will position for portfolios and for all of that trading. Perpetuals are not suitable products. So they are an amazing innovation of the industry. But they're short dated products. But if you want to position for some event a month from now, three months from now, if you use perpetuals, you're sure to miss out on any target you might have because of the funding element which will totally distort your pnl. So it's not a suitable product for that kind of stuff. It's highly suitable for HFT trading, for short term directional stuff, for, for that's coming out five hours from now or one minute from now. It's a perfect instrument, but it's not suitable for longer term positioning. And all of these people that are still to come, the structure, products, providers, they create products that expire two months from now, six months from now. You can't do that using perpetuals. They will do it using options in the future. So, and I think everyone will agree that these people come. The question is how fast and when, etc. But the road is in that direction. That's why all of us are getting regulated. That's why we focus on quality metrics like ISO certification, soc to. It sounds all very boring, but that will unlock that flow. We need to be as secure and safe as possible and then these firms will come and they will start trading the products we offer. So the, the, the institutional growth will come. The real institutions, the investment banks, I think that will take longer for firms like Goldman, JP Morgan, etc, for them to convert and start trading an instrument and an asset class that, that in their compliance, that risk, their accounting, all of that audit procedures, all of it is different. For them to really absorb this, this and many management layers and directions and less statements like Jamie Dimon today made about the discipline, et cetera. They need to gradually accept it, but at some point they will, I highly believe that. And then they will allocate a team and they will simply copy paste what they've been doing for the last hundred years, which is structured products, hedging, et cetera.
- [17:32]
Interviewer
Perpetual swaps to my knowledge are unique to crypto. Right? I mean obviously we all remember sort of Bitmex innovating on that and then other people running with it. Is what you just described the reason that they have not been adopted in other markets? Are they too confusing for the regulator? Why haven't we seen perpetual swaps which are so efficient, at least in the short term, adopted by any other asset class?
- [17:57]
Luke Stryers
It's a bit, if you look at traditional markets and the difference per country, but see if these are the same, let's say family. So see if these are highly successful in Dubai or in this part of the world, they're highly successful in the UK and many other countries. So some part of the innovation of a product that gives you some kind of exposure with a funding fee even though it's not the same. So it's, the instrument is not identical, but it's like a family member which has been proven to be successful in big parts of the world. Also institutional trading is done using contracts for defense. So it is somewhat successful, but not in its, in the crypto style. It's an amazing product and the funding element I think is missed by many. So if you trade for a few minutes you don't care, you don't need to know the exact specifications but if you trade longer it becomes a very.
- [18:51]
Interviewer
Important component that makes a ton of sense. Do you think that those will eventually come or do you think that it'll just become a sort of a crypto native thing that we have a lot of fun with?
- [19:03]
Luke Stryers
It depends on regulator willingness. Right. So if we, if we or any of us would go to the regulator, say we're going to change the world and we're not going to use clearing and we're going to do the SAM FTX tried in the US You've seen the response regardless of the end of ftx. But let's say before there's a lot of resistance in a highly competitive product and a clearing model will this no time soon. Yeah, I don't think that would be coming soon.
- [19:37]
Interviewer
So we talk about. Obviously US institutions to my knowledge are still not available technically in the United States. But can United States institutions still utilize Darabit through offshore entities or is there a structure there or literally is anyone in the United States unable to use deribit?
- [19:53]
Luke Stryers
Anyone that's a so called US person which is more than. So it's not just US residents but it's like anyone that has a principal place of business in the US So if your core of your company is the US you can't trade. But what is possible is for US owned entities which set up shop completely autonomous in whatever Singapore they can.
- [20:15]
Interviewer
Yeah, that, that was my assumption.
- [20:18]
Luke Stryers
Completely segregated and there's no involvement from the U.S. right. So the traders can be in the U.S. the, the people creating the algos can be in the US Anything the people don't do in the operations come in US if you completely segregate and you, you allow the offshore unit to operate completely remote then it's permitted and we are very strict. So you have to sign X statement, you have to confirm. So it's of course after Bitnex, Binance, etc we don't want any problems at all. So we, we, we're extremely conservative as.
- [20:50]
Interviewer
Well you have to be. But that speaks to the potential of the market that you mentioned before because we all know that the bulk of options on every other asset is traded in the United States. Right. And so that leads me sort of down a couple paths. One is we're seeing now options on IBIT and Fidelity's ETF and others and I think eventually probably will come largely to all the spot ETFs. Do you think that that is what the Americans who are looking to adopt the strategies that you're talking about will end up using? Because they're not using the CME to any huge degree. Because usually that means hedging against spot exposure. And most of them aren't buying spot bitcoin. Right. They might buy the etf. So does this sort of become a segregated market of institutions who don't really care about the actual spot asset holding Bitcoin itself or hedging against it, who use the ETF as a proxy and then utilize their strategies on the ETF itself?
- [21:49]
Luke Stryers
For now it does. So these people can't access. So in the, in the US it's a, it's an access game. Right. So a lot of people can't access the CME as easily as they can, let's say Tesla now IBIT options or the, the, the, the ETF options are equally accessible like, like Tesla options. So of course the space opens up and the, the same people that trade Tesla, let's say 50, 60 retail, have the ability to trade IBIT options. You already confirmed. And ETF's options is typically bought by ETF by retail. So all of the hedging and all of the stuff we talked about earlier can become applicable. Will it be an institutional proxy of the real thing? Don't think so. There's fees involved. Not all firms have the same mindset. So some firms are terrified of crypto and rather have like wrapped crypto because then it's just business as usual, comparable insured.
- [22:43]
Interviewer
They feel like it's safe, it's on a exchange that they trust and are familiar with. That makes sense.
- [22:48]
Luke Stryers
Yeah, but there's also plenty, I think the U.S. has something like 20% of the, the U.S. citizens own crypto one way or another. These, this crypto is held by, by larger firms. These firms have thousands of BTC and they want to generate yield. So on top of Bitcoin they want to trade and they promise their clients yield. And you do that. Or part of the solution would be, for example, staking. But the traditional way of doing that is trading options. You sell out of money options, that kind of stuff. In that case, if you go to, let's say CME or NASDAQ or wherever, and you say, or the brokers involved, you say, look, I have a thousand Bitcoin, you're not welcome. So these firms can't trade that typical model or their preferred model and they would come to us. So firms with Crypto, they can only trade use net cryptos collateral on a venue like ours and not on any of the US market. So yes, I think it will be partially successful, already is successful. So people will trade the option, I think flow in the end begets flow. So more and more flow that, that is traded. One flavor here, the other flavor there generates all kinds of arbitrage strategies that didn't exist before until the, the second market started, which in our case, or at least for now favors us. So people sell in the options in the US and they hatch on there. But so there's all kinds of flows where access becomes a key determining factor. So some firms can trade two markets and of course they will have the ability to, to trade differently and some firms can only access one. For us, we have way more market makers than, than in the US the, the, the, the hurdles to access are much lower. So we have, we have small traders, we have two guys in the garage can trade highly successful on the crypto venue, but they wouldn't be able to trade on CME because of the capital requirements, because of all the regulatory requirements and they can trade on the average. So we, in terms of liquidity and in terms of access, we have much more. And if you're the guy that can do both, of course that will generate new trading strategies. Then one is in dollars, one is the crypto one. There's an effects component, there's, there's a weekend components or markets will close while we'll never close. So there's this collateral requirement. So it's, it's a smart game, but if you play it well, you can generate additional volumes and additional returns and that's what all of this unlocks. So we don't see IBIT options in the US as a threat. For us, the US has never been an exit game anyway. So these people in the US this retail market that is able to trade now was not able to trade yesterday. And if part of that flow, or even though it's only 1%, if part of that flow is heads on there, we gain 1%. So we're happy.
- [25:27]
Interviewer
I never really thought of it that way. I mean obviously it's the idea that a rising tide lifts, lifts all ships, right? And we see that in markets across the board. But for you specifically, actually if we start to see massive adoption of options on ETFs that could open other arbitrage and hedging strategies for people who have access to that, but then see some sort of inefficiency between that market and deribit and can make money arbitraging that gap. So it actually, the more markets, the better for you, especially because you're leading already. I would have never thought of it that way.
- [26:02]
Luke Stryers
The latter is important, of course. If you're dining, you're not going to see the benefit. So we have to keep our leading position with size. Yeah, yeah.
- [26:12]
Interviewer
That doesn't work for a thousand bucks. Right. I mean, if you're talking about a few bips in efficiency that somebody needs to take advantage of and there's fees to worry about, they have to be moving massive size.
- [26:21]
Luke Stryers
What I'm referring to is that if you let's. Even though it's a few bips, if you want to offload that, you're not going to offload it on the small, smallest venue. So we have to be dominant in terms of.
- [26:31]
Interviewer
Can't have slippage. Right. You have to have deep liquidity. Right. I totally understand that. So any maturing options market basically is a massive benefit to you anywhere in the world. But the next question, obviously the obvious question is we're in the midst of regime change, right? We've seen Donald Trump appoint pro bitcoiner after pro bitcoiner after pro bitcoiner. We know that the regulatory assault on the industry is likely to at least diminish, if not die completely, with Paul Atkins coming in at the sec, likely, Brian Quintenz at the cftc, I mean percent at the Treasury. Right. I mean, it's almost like a fever dream when you see what's happening here. But does that mean that you've changed your strategy as to how you intend to approach Americans? Is there a path now that didn't exist before for Dare Bit to become regulatorily approved in the United States? And was that something you were working on before there was regime change and hoping for it? Just what was the status, I guess, over the past few years of trying to enter the American market and how much has that changed now?
- [27:37]
Luke Stryers
If you look at the success in over the past years in markets entering the us, it's all spot driven, so no one has actually been successful in the derivative display. And so we, for us, spot is tiny or almost irrelevant. So for us, the US has never been big on our agenda because we knew the CFTC wouldn't let us or anyone else approach the us. So for us, we hands off in, in terms of US access. Trump is a potential game changer, but the game will predominantly change for the US market. So you can imagine whatever Coinbase, Kraken, Gemini, those guys, anyone with the US Mindset they will do well. So they there whatever their problem is the problem will become less tomorrow and part of the problem could be derivative so there will be more opportunities for them in the US Will, will the MAGA mindset open indoors or for us? Not that easy because that's exactly what Trump is trying to prevent all the terrorists etc it's about the US and it's not about helping there a bit. It would be great but that's not part of his game.
- [28:45]
Interviewer
So you think he puts a wall around the American companies that are trying to adopt the space without allowing others to sort of enter.
- [28:52]
Luke Stryers
I don't. So I think in the end seems.
- [28:55]
Interviewer
Like if you just open an office in New York City. No, not New York City, in Texas, you know, maybe, maybe they view you differently.
- [29:02]
Luke Stryers
I think there's two answers to the question. So one is, is let's say overall is going to ring fence. He might, he will favor the local markets, employment etc and will he open the door to Binance OKX in there? Why, why would they they rather see the employment go to, to their constituents than the foreigners? So that's part one. If you look at us, we are 85% institutional. I think lifting the problems for the institutions slightly might open some doors. If they simply say look you can do whatever up to X, whatever X is, it makes their life easier and less restricted and they might be easier permitted to, to access the markets outside of the U.S. so that's, that's one opportunity. The other one would be US register in the us so there's stuff like a foreign board of trade which is offshore markets that, that, that can let's say whitelist a product for U S persons. That's not so easy because like mentioned before, we have an integrated clearing model. So for us the market, we are essentially the full vertical. So in the US everything you have, the FCM, DCMS, etc. All of it combined or in layers, that's like let's say the overall market. For us, we're everything combined. So we are the broker, we are the platform, we are the clearing hours or margin out, we are the settlement agent. All of that stuff is one entity and that model doesn't exist. So if you go to the US and say can we offer our service?
- [30:31]
Interviewer
They wouldn't allow that here. Right. You would have to find a different custodian, a different broker, dealer. You'd have to have 47 new licenses purchase different companies that already basis.
- [30:40]
Luke Stryers
Right. So that's so part of not only our game plan. I Think multiple exchanges are looking at it. Should we do this? And, and especially the clearing model is the, the difficult component. Who should clear it? Should it be, you know, US Clearing house and offshore, et cetera, et cetera. All not easy to address. But I think those are the opportunities being reviewed overall in the market. Because I think people will see the US as an opportunity, but not, not like an easy one. It's not in the beginning when, when Trump started winning and Price started rallying everything, wow. Now it's now, now it's up to the sky is the limit. I don't think in reality it's. It's like that, it's. But it will be, it will open new opportunities. Perhaps we don't see them yet, but it will open new doors. That's what I do believe.
- [31:30]
Interviewer
So you would literally have to chop your business into pieces and partners partner with like a DTCC or ICE or even CME clearing or something like that, just to even be able to operate in the structure that exists here. You just have a fundamentally different structure.
- [31:48]
Luke Stryers
Or have the US accept our structure, which is, which will be challenged. Yeah, yeah.
- [31:55]
Interviewer
Especially after all the, I mean the very fact that your crypto already is like a scarlet letter. We all know no matter what happens. And when we saw what Sam tried to pull off to your point, right. FTX pretending that they were like a registered custodian didn't do anyone favors.
- [32:10]
Luke Stryers
No, no. I think the message he tried to convey was genuine. In the end, the model that, let's say the crypto model, where we have 24, 7 trading, where we have real time risk management, is a better model. I do believe that. I think any would agree and capital required is less if you never close and you can act immediately and we don't have to wait for Margie calls to come four, eight hours later. Of course that's a better model. It's real time and the pain is much smaller if you can take it immediately than have to wait until someone wakes up. So the model is strong, but yeah, the one selling it isn't helping it.
- [32:50]
Interviewer
You talked about all these various strategies obviously that people are using on Deribit. I think one of the biggest ones that maybe there's some confusion around or that you just keep hearing thrown around is the carry trade. Cash and carry trade. Carry trade. We know that it was a bit of the widowmaker on GBTC last time, but that was because people's bitcoin was locked in grayscale. So it's a different trade. I just want to Put that out clearly, because every time I talk about the carry trade, people say that blew up the industry last time. And that blew up the industry because you didn't have access to, you were locked. And when something goes from a premium to a discount, while you're locked, you can't react and do anything. So that's why it was kind of a widowmaker. But how much do you see people, first of all, I guess structurally right now, our futures sort of just perpetually in contango. Is there a hope, is there always an assumption that bitcoin's going to be higher when there's any bullish sentiment? And does that just allow this sort of endless yield from the carry trade while that exists, is it always going.
- [33:50]
Luke Stryers
To be in contango? No, you've seen that in the past.
- [33:52]
Interviewer
I mean a bull market, sorry, right now is the expectation that we remain.
- [33:57]
Luke Stryers
In container outside of bull market. It's typically contango as well. But then today I'm just looking at it now, it's 11, 12, 13 annualized, approximately, which is essentially almost free money that you can grab based on which.
- [34:10]
Interviewer
Sorry, based on which contract. Just so people understand, like you say.
- [34:13]
Luke Stryers
11 12%, at least on Derbit, you, you have, let's say dollars, you have USDC and you buy BTC and you sell the BTC future in a certain expiry. If you look at the these expiries and let's say a product expiring tomorrow, the yield would be slightly higher. But if you look at it's three, six, nine months from now, today the yields are approximately 11% annualized. 11 12. That means that on your $100,000 you can make 12% guaranteed. And it's really guaranteed whatever bitcoin does. So it could rally to $200,000 or it could crash to $50,000 is irrelevant. You will get your 12% yield unless the market fails. So you take market exposure, but you don't trade bitcoin exposure. It's an amazing trade. A lot of people do it and I think so for us we were looking at creating an easier button just to say, look, lock in this yield.
- [35:07]
Interviewer
Yeah, like what? One click strategy to that they will automated buy you 100,000 in Bitcoin and sell you that contract and you're done.
- [35:16]
Luke Stryers
And it would lock it and you can unlock it. Of course, because you said the GBTC trademark, it was locked in our case, you can unlock it. But during the, let's say your exposure to three months, it doesn't mean that your yield One and a half month from now would be half of it. It could be different but at expiry it will be 12% annualized. So that's, that's a given. So if you unlock in the meantime, you could be better off or worse off. It depends on the market sentiment. But at expiry you will have to absent guaranteed annualized.
- [35:47]
Interviewer
So you have to make sure that, you have to make sure you're not locking up bitcoin that you're going to need to sell if things go wrong.
- [35:51]
Luke Stryers
Yeah, of course, free money essentially that you're not going to use or you should be able to willing, you should be willing to take the pain should you really need it.
- [36:01]
Interviewer
Right. But if it was bitcoin that you were going to trade, if it was bitcoin that you were going to trade, for example, if you're at 100 and like your stop loss would have been 95 and Bitcoin goes to 50 and you're there. Yeah, you made your 10 or $12,000, but you now have bitcoin that's worth half that you were not basically able to sell. You could have by the way, you can unlock. I'm just saying in a, in a vacuum.
- [36:21]
Luke Stryers
Yeah. So if the, the, if the market let's say drops your, your bitcoin is worth half, but your short future is worth double. So in, in, in dollar terms the, the, the position total would be 112,000. But in bitcoins you would, let's say it drops 50%. You would have let's say roughly two. And your, your mindset might have been different. You, you, you might have wanted more or less. But in dollar terms is, it's a.
- [36:49]
Interviewer
Given now you can buy more bitcoins at half the price with your profit.
- [36:52]
Luke Stryers
Yeah. But if the market rallies to a million, you lost out on that opportunity. So there's zero chance you will participate with a single dollar of that upside because your website is kept. But it's for many people it's fine. So 12 is amazing yield if the bank pays you. If you're lucky you get whatever 4 or 5% if you're lucky and in this trade would give you 12.
- [37:15]
Interviewer
Is the trade the same if you're buying BlackRock spot and shorting their futures or the numbers different?
- [37:21]
Luke Stryers
The numbers are different. So if you, if you short to see me futures the margin requirements are different and, and the yield would be different as well. So typically on offshore markets the, the, the, the base is slightly higher.
- [37:34]
Interviewer
So what, let's talk about five, ten Years down the road. Let, let's put reality aside and say in your best case scenario, Bitcoin becomes a legitimate asset. As you said, everybody owns 1 to 5% of their portfolio is put into Bitcoin. And we have a fully mature options market and futures market that looks like any other asset class. What does that look like for DARE bit? And how do you effectively plan and prepare for that future coming? Is it more products? Do you start offering altcoins? Do you start offering spread products? Eth, btc, spread, what kind of things? I guess are you looking at that with the perfect scenario in mind?
- [38:15]
Luke Stryers
So I don't think the perfect scenario will, will just happen. I think the perfect scenario is partially made by us. If you believe that the market is going whatever, let's say a million dollars upside. This million dollars means that whatever, let's, let's make up a number. 10,000 firms have to access the market. And these 10,000 firms, hedge funds, asset managers are highly regulated traditional firms. They can only buy, let's say Bitcoin or Bitcoin derivatives if all the boxes are checked. So in order for the coin to rally to a million, they need to be able to check the boxes. And until they check the boxes, that the coin won't rally. Let's say box one is an etf. Box two is stuff like certifications is regulatory stuff. We need a license, we need a method license. We filed for method in Europe. Without the method license, these guys, let's say out of 10,000, 2,000 will be from Europe. These 2,000 firms can't trade bitcoin derivatives on any market. As long as you don't have the license, then if you have the lines, you need all of the financials. That's quite a hassle. We have four years of all of the financials. You can't imagine the drama it takes to get all of that stuff done. Many markets don't have this. So all of them don't classify. We need it. We highly invest and make it all happen. To get the audited financials, he needs ISO certificates, it needs SOC2. Sock2 is about security. We just got like another CCSS protocol which is about wallet security and, and how you manage private keys and all of that stuff. All of that stuff needs to be done for these 2,000 or 10,000 to start trading. And once they can, the coin can rally. Of course, the more it becomes successful, the more regulated it becomes. So it's a self fulfilling prophecy. And we, we like to take part of, let's say the growth Map by enabling that we're looking at South America, we're looking at Asia. It's. It's a regulated. It's a highly regulated model. Anyone, or at least in my view that thinks the, the original mindset as in, in crypto against.
- [40:11]
Interviewer
As a wild West.
- [40:13]
Luke Stryers
Yeah, the wild West. And we're gonna. That that line of reasoning will fail. The governments won't allow the regulators and the capital won't allow. The capital won't flow to that. Those kind of.
- [40:25]
Interviewer
I laugh. I laugh because I remember when I first started trading. Yeah. I came from trading. I came from DJing, but I came from trading other markets into, into crypto. Right. Because of these unicorn pumps and this crazy stuff you'd heard about and all this volatility and because, and this was conversations. You know, I went to the University of Pennsylvania. My friends are like at Goldman and, and Morgan Stanley and everywhere. And my conversations even with these guys was holy crap. Like crypto exists in its own world. You don't even need to pay taxes on this stuff. Like even guys that worked at Goldman thought at that time that we could just go do whatever you want. And it didn't matter until maybe you came out back into cash. Right. Like your altcoin trades didn't matter. You were losing Bitcoin. Whatever. That whole mentality is dead to your point. But there's still probably thousands of non kyc exchanges with anonymous CEOs all around the world making billions of dollars in crypto. How can they. Is that, is that just a flash in the pan that eventually sort of gets arbed out in regulatory.
- [41:33]
Luke Stryers
There's plenty of money that went to these scam ICOs. I don't think these, these people will go to jail or they simply got away with it. So it's a temporary thing. It. But it blew over. So the NFT hype has changed.
- [41:46]
Interviewer
But I'm not even saying these. Yeah. Not to interrupt. I'm not even saying these exchanges are scams. They're just clearly not concerned with regulation or they're registered somewhere. But like there's plenty of Americans using non KYC exchanges with VPNs all over the world.
- [42:00]
Luke Stryers
Yeah. And Defi Solutions, et cetera. So. But if you, if you believe that we're going from here to here, this roadmap will mean that, that that stuff sees it existing. But that doesn't mean they shouldn't do it today. But they have an amazing business case and, and they most likely will get away with it. So. But it will die out. Look at the Number of platforms before FTX and after. Look at the, the, the allocation. The large firms traded 100 markets after that happened. They traded 20 markets or 10 markets simply because they got burned. And they won't get burned again the same they will these, these firms will get penalized, they will get whatever CPC as you see some, some regulator global will find them, they will stop or they get hacked and then it's, it all blows over. But in a new platform today versus a few years ago is way more difficult because the level of trust is not there, the risk management systems are not there, the people, it's more difficult. So, but it's a phase. But I believe that if you go towards whatever the million dollar, bitcoin, whatever that might happen, this, this stuff will cease to exist and the number of players will be small and that facilitate all of it. And we will be hopefully one of them, but we won't be the only one. There will be multiple, but it won't be a massive list as today. It will be a short list with way more clients. And all of these clients feel comfortable like they do in regulated markets because they know it's properly arranged, because they know it's being audited, they know that there's financial people looking at it, they know that the proof reserves are there, they know that the coins are kept secure and safe, et cetera. All of that is a requirement for these people to join.
- [43:35]
Interviewer
Yeah, I mean I guess Bitmax is a perfect example, right? They were the only gig in town at that time. I think they were doing it one point like $8 billion, 24 hours or something and that's gone. And listen, they've gotten I think compliant and they've learned the lessons and it was at a time, it was the Wild West. But I think that's probably like a cautionary tale for other exchanges, you know, in the future as to look at.
- [43:59]
Luke Stryers
The lending space, Lending space is the same.
- [44:01]
Interviewer
Look at all of Celsius and yeah, all of them.
- [44:05]
Luke Stryers
If you look at the size, there's some calculations done about let's say pre genesis or post genesis, it's something like $20 billion in freely available capital and now it's 2. So 18 billion or more is gone, that phase is gone. So the capital is more scarce and it won't easily come back. And once it comes back it will be more prudent and the LTVs will be different and it will be, but.
- [44:35]
Interviewer
And to your point, it'll come back to State street and bank of New York Mellon and it won't come back to Celsius. That's really the answer, I think, is that the incumbents, the trusted institutions that bitcoiners obviously hate, that's where it's probably going to land. If it happens in size or there are some believers that think that defi could take all of this.
- [44:56]
Luke Stryers
I think the default will play a nice added value for people where the trust is less relevant. So for you, if you need Boney or whatever, those kind of names and you're allocating a billion dollar, you're not allocating a billion dollar without 100 checks in place and you want reports and you want people and you want whatever.
- [45:14]
Interviewer
All of that stuff, insurance, I'm telling you, that's the big one. Yes.
- [45:17]
Luke Stryers
If you allocate a thousand dollars and you're going to get 5% extra yield via Defi suite. And I think it will work. I think people will keep on using it.
- [45:26]
Interviewer
Yeah. And that's why. Yeah. No one to call and then. But there's a. There's a certain part of the market that will always like that. There's no way to call and wants to see the smart contract and do it. But, but to your point, very hard to imagine that they end up in size competing, at least initially with the bank of New York Mellon types. But when you talk about these other exchanges and how eventually they'll probably go away, but it's probably okay now. I think it is okay now. I'm not saying okay morally or legally, but they're okay businesses now because we're still at such a small percentage of the global population that is even interested. And they can have thousands and thousands and hundreds of thousands more retail traders with small size still sign up and make billions of dollars without ever even having any institutions or any huge size or ever even being on the radar of the United States regulators.
- [46:21]
Luke Stryers
Yeah, but forget about the US Just the concept, for example, just the concept of defi where it's completely trustless. If the protocol is proper and everything is properly checked and the protocol simply does something that it's programmed to do. Do. It's an amazing solution. You don't have to trust anyone. But before that solution is adopted by, let's say Goldman and that army of people reviewing stuff, they have a thousand questions or more. They have all these due diligence forms. They have all their standards that they have deployed to hundreds of different markets and OTC parties and they will keep on doing it every year. And those are their jobs. That's their life. And they're not going to say, okay, fine, this defi solution is pretty nice. We're going to ignore all of our policies that we've drafted over the last decades, which are approved by all the regulators. They simply say, look, this doesn't fit the box.
- [47:15]
Interviewer
Yeah, that makes sense. So stepping out of your role as the CEO of Deribit and talking about all the products you can offer and all the things that are coming, let's talk about the market just for a bit. Right. You obviously have been in crypto for a very long time. You've seen the cycles, you've seen all these washouts. Where do you think we stand here? Sort of coming into the beginning of 2025 as far as what's likely to come. You don't need to give me any specific hyperbolic price predictions, any of that, but are you feeling like it's happening, the tailwinds are here, that we're entering a monster bull market, as many do, or are you proceeding with caution? I mean, what' your general feeling on the market?
- [47:59]
Luke Stryers
I think today, I'm not sure when you're airing this, but today is risk off. So this period will last perhaps until Trump. Some people are keen to see what he's going to do and going to announce the first days. But today global markets AI Bitcoin, etc is being sold as it's seen as a risk on product. So it's simply being bucketed with the rest. There's no macro theme, there's nothing negative about bitcoin. I don't see any negative headlines. So it simply part of a risk bucket which is not.
- [48:34]
Interviewer
Yeah, this won't come out for at least a few days, but we're recording this on January 13th. So people know and Bitcoin dropped below $90,000 for the first time in a couple months. Today DXY hit 110 and 10 year yields in the United States at 4.8% I think this morning. This is a macro story and nothing. I love that Bitcoin's generally an uncorrelated asset, but no asset can hide when. When the Fed's cutting and yields are still raging.
- [49:00]
Luke Stryers
Exactly. So it's simply a victim of global macro trends. And will it continue tomorrow? Could be. Will it be 80,000? Extremely difficult to predict, but I don't think it's like now is like an amazing moment for risk assets. However, I do think that Trump will change the game. So I do think not necessarily him, but the people he's appointed will gradually change the landscape and that will open up more doors than it will close. So just assuming that the doors, the net doors opened will generate new income or new inflow of money and the coin will recover. What the price level will be, I don't know. I never do any predictions. But it will be higher than it is today. That's my personal conviction. Will it be there at the end of January? Don't think so. This will take time. So will it be Q1, Q2? Could be. I think it's, it will be positive. If you look at positioning in the drifter space in our market, it's longer term positioning, it remains bullish. The basis we talked about earlier is still bullish. It's, it's. The basis is a reflection of market sentiment. It's still positive. So it's a temporary risk adjustment. But the overall flavor, the, the sentiment is still positive. If you look at volatility, it hasn't exploded. So people simply think this is, it will be like this for a while and then there's upside momentum. Will it double to 200000 overnight? No, the market doesn't expect that to happen rapidly. But the chances of bitcoin rising I think are higher than that. They're following. So I think it's, it's still bullish. It's, it's positive. The sentiment is still positive. I talked to a lot of people all day and no one is like panicking. It's a temporary correction I think and it's a macro thing but there's no problems and nobody knows.
- [50:53]
Interviewer
I mean looking at bitcoin specifically, I think it's like peak to trough is 17 or 18% maybe below 90 from the highs at 108,000 when we're talking now 30% as usual. I think most January candles actually have a 30% spread. This is not the, the most bullish month necessarily and you tend to see these huge retracements in a January. But that's good. I mean it's encouraging. You have the data. So let me ask you this. What's the most popular end of year contract being traded? If you have that data on price on bitcoin, what's the biggest bets people are making on the price of bitcoin at the end of 2025 or maybe even I don't know if 2025 as December is the best benchmark, but I.
- [51:39]
Luke Stryers
Have it in front of me. So in terms of open interest, it's still relatively small because we didn't open it long ago. So we, we have up until a year outstanding. So we're just in January. So yeah, it's brand new for two weeks, so it's limited. But the biggest contract for this for December year and is 200K. So it's, it's, it's gradually being positioned. We have limited exposure thus far. So it's, it's not a massive contract, but it tells a tale. Right, so it's, it's upside positioning and the longer from today, so if you look at, let's say tomorrow's expiry, there won't be 200,000 contracts or open interest, so it will be whatever 100,000. It typically is always close to the, the, the price level. So the further away from today that the volatility of the price makes those stories more possible than this kind of stuff happening. So you would typically expect the higher strikes to be in the further outs and it's too small to be of any significance. So people shouldn't conclude anything based on this. But it does indicate like more bullish momentum overall. And typically crypto is more bullish than traditional market. So if you look at. Of course it's a different. Yeah, no, it's.
- [52:55]
Interviewer
People don't generally anticipate the stock market to double in a year. And crypto, that's a pretty common bad.
- [53:00]
Luke Stryers
Yeah, no. So the typical ratios are already bullish, which is kind of strange, but that's simply effective life. So the clients, and especially retail that position for. It's like an lottery ticket. So they think, look, I buy one option and, and if it happens, it happens. And then, and so, and many people made a lot of money by doing this because we've seen like an amazing rally.
- [53:23]
Interviewer
Because I want to ask you just sort of a pragmatic question because you have a lot of like retail traders or traders that like to look at option flow to determine what they should be doing in the market now or what the general sentiment is. Can you just give like a very basic idea of how your average person who wants to understand options positioning and what's coming and how the market is viewing things, how they can just kind of quickly take a look at your data or any options data and to give them sort of actionable intelligence to.
- [53:53]
Luke Stryers
Determine where the market is. I think the easiest way to do it is looking at three things. So options, Options price is determined by the time to expiry. So how long. It's like an insurance policy. How long does the insurance policy cover? And of course, the longer it takes, the more you have to pay. So that makes sense, of course. Strike. What are you insuring against? Are you insuring only let's say water or also fire and whatever. The more you insure against the, the more premium you have to pay. But the most important one is volatility. So volatility is the, the expected move over time. So if the volatility is high, the, the, the biggest strikes and the bigger drops become more realistic than if the market never moves. So if volatility is high, and we have a gauge for that, so we call it Devil, it's like Vix, but then for, for crypto, if it's high or low or relatively high, you know that options are expensive or cheap. So you know that when you're buying a call at peak volatility level, you know that you're paying a lot of money for an option. If voltage is very cheap or low, then you know that you're. It's an interesting moment to buy. So that's always. It doesn't mean that if you're buying it at peak volatility, that's the wrong move. But at least you know that you're paying top dollars for the option. So that's, that's. No. Secondly, we talked about the basis. It's always good to understand how the market looks at the future. So always look at the basics, which is like an indicative indication of what the market expects. So if you think you're bullish, at least it's nice to see whether the rest of the market also has the same view or whether you only want. If you're the only one and the market's in backwardation, you have to be have a little bit more conviction than if the market is looking very good.
- [55:39]
Interviewer
That's when you smash it. When you're the only bull left. That's when you smash it.
- [55:44]
Luke Stryers
Yeah, yeah, but you can make amazing trades. But you have to know the only rule left or whether there's loss. Yes, it gives an indication. And the third one I would look at the sku. So the relative pricing of options, calls versus puts. So if the calls are very expensive or normally expensive or very cheap, it also gives an indication. So if skew change. So that's like implant volatility, volatility of, of closing puts competitor. We forget about all the complexity. But if you, if the number is trading in certain direction. So normally it's like let's say in line. If it, if it significantly moves in one direction, you know that calls are being bought or sold. So if they're sold, they're sold for a reason. If they're both or both for a reason. So it again confirms the sentiment. So if you have these three, you know @ least where the market said and then if you're believing of technical analysis or whatever, that kind of stuff, it adds another layer. But at least do your homework. And of course look at whatever. We have free courses, but there's plenty of YouTube options are a bit more complex than anything else. So you shouldn't trade it, especially because of volatility. You can, you can have the direction. Right. But if volatility moves the opposite direction, even though the market rallied in the prediction, the predicted direction, you can still lose money. So you have to be way more careful with options than with spot, because all of these metrics don't apply to spot. So it's a more complex product. Make sure that you understand what you're doing. But look at these metrics and know when you're buying or selling, what the, what the rest of the market thinks and how it's being priced so that at least it gives you more conviction. And then if you're wrong, you can at least understand why you're wrong and why you lost money instead of just being at this, the mercy of the market.
- [57:31]
Interviewer
Love it. I, I love ending with a little bit of actual like actionable advice to help, you know, people. Look, we, we often get into these very deep conversations that are probably over their head heads. But it's nice to just say, hey, this stuff is useful even for you. If you're just determining when to buy or sell spot. Right. You could tell what's happening even.
- [57:49]
Luke Stryers
Yeah, you don't have to care about options at least you know, for example, our expiries, the big expiries like the December year and the quarterlies, they do impact markets. So they, they. If you're, if you look at the options market and the big expiry, you know that's going to happen tomorrow. Just be a bit more careful with your trade. Even though it's a spot rate, if you know that the market that will be expiring, perhaps you should wait until after the expiry.
- [58:12]
Interviewer
Yeah, it makes perfect sense. We love to see those Bloomberg articles, the triple witchings and all the big expirations that we hear about. Nobody knows what the hell they're talking about. Luke, really a pleasure. Where can everybody follow along? I know you don't use X very much, but where can people follow you after this?
- [58:30]
Luke Stryers
We push a lot of content on X so there with exchange on X LinkedIn and we have a protocol insights.devo so we publish a lot of you know, insights, stories of what's driving the markets so you can easily follow us there.
- [58:47]
Interviewer
I would love to have. Well, it's above your pay grade. Below your pay grade, I should say, but I would love to have you or somebody from your team come on my shows more often and just kind of keep us updated as to what's happening with the option flow and sort of maybe present some of this data.
- [59:01]
Luke Stryers
I think it'll be really helpful during the bigger expiry. So, and let's say the year end, it's, those numbers are big. The, the March one will be big, the June one will be big, and sometimes let's say the Trump one. So we introduced the Trump expiry earlier. You see people positioning, of course, it's, it's macro. Not really macro driven, but political driven. But it's. Those kind of moments are interesting to look at. The data. Perfect.
- [59:30]
Interviewer
Luke, thank you so much for your time, for your extra time, I should say, really a pleasure to finally connect. I know we met, I think in Dubai in the past, but to actually get to sit down and have a recorded conversation after all this time. And I really would love to have you back soon.
- [59:43]
Luke Stryers
Gladly, gladly.
- [59:45]
Interviewer
Thank you so much, Luke. See you soon.
- [59:47]
Luke Stryers
Thank you. Cheers. That's dope. Dope, dope, dope, dope.