The cryptocurrency market has been under a menses of duress, with a majority of the tokens in the cryptoverse witnessing a price slump that has set in since the beginning calendar week of December. The flagship cryptocurrency token, Bitcoin (BTC), underwent a flash crash on Dec. 4, wherein the cost of the token brutal below $50,000 in well-nigh two months, as per data from Cointelegraph Markets Pro.

This phenomenon was witnessed among the majority of the cryptocurrency tokens as the market was gradually painted in cerise. Ethereum and Ether (ETH) came to exist the network and token of option for a majority of decentralized finance (DeFi) protocols as Ether witnessed a 19% price drop.

Notwithstanding, BTC and ETH also have a salubrious futures and options market that could've played an important office in foreseeing this ongoing cost slump for these tokens.

Coinindicing with the toll crash on December. 4, $950 one thousand thousand worth of BTC options expired, wherein bears had the advantage over the bulls fifty-fifty at the time when the price was trading at $57,000. The options data leading up to this expiry suggested that it was skewed toward the market forces being bearish due to a loftier proportion of put options below the $57,000 mark. A put option is a contract that gives the holder of the choice the right (but not the obligation) to sell a predefined amount of the underlying asset at a predetermined price.

A call option is ane in which the selection holder has the right to buy the underlying assets under similar weather condition. The proportion of put options in comparison with the phone call options leading up to an options decease is highly indicative of the sentiment that prevails in the marketplace for the underlying asset. In this case, at that place was a clear indication that markets were heavily bearish even a calendar week before the death and the toll flash that went mitt in mitt.

The forces in play

Luuk Strijers, the principal commercial officer of crypto derivatives exchange Deribit, spoke to Cointelegraph nearly the signs in the derivatives data that gave an inkling about the incoming crash:

"Prior to the weekend correction, we saw a spike in IVs perchance related to postal service-expiry related selling. There seemed to exist some doubtfulness in the market place, and we saw Take chances-reversal strategies being traded (Sell OTM Call + Buy OTM Put)."

Since the expiration date for an selection is the last date on which the option holder tin can either decide to exercise the choice of either executing the purchase or sell order of the underlying nugget or the holder deciding to forfeit the option and let it expire becoming worthless, expiries often become significant events that impact the price dynamics of the underlying asset, in this instance, Bitcoin.

Strijers opined on the impact of this item expiry on BTC, saying: "Hard to tell for certain. However, more and more people sentinel the expiry and open involvement levels at certain primal strikes which amplifies the relevance of the larger expiries."

Adam James, senior annotator at OKEx Insights, the research arm of crypto substitution OKEx, spoke with Cointelegraph nearly signs leading up to this crash: "The nigh obvious signs that a crash may be impending were the extremely high open up interest and positive funding. Those two things don't more often than not bode well and often require a flush." He added further:

"The cascading sell-off we saw on Saturday was simply that affluent — thin weekend social club books made it easy to steamroll overleveraged longs and crusade something of an OI reset. As it happened, the crash was one of the largest capitulating events in BTC'due south history."

Despite this miracle existence an indication that the toll of the underlying assets and the derivatives markets are closely related, the size of the markets is still just a bleep on the size of the spot markets.

Institutional investors could be the game-changer

Considering the derivatives markets that exist for the acme two cryptocurrency tokens, BTC and ETH — though with significant growth in open up interest — it is a very modest pct of the spot markets and its current marketplace capitalization for their assets.

The open interest (OI) for BTC options has grown more than than tenfold from nearly $1 billion on July 1 to stand at around $11.4 billion at the time of writing. The OI hit an all-time loftier of $15.72 billion on Oct. xx. Soon after, BTC hit an all-time high of $68,789.63 on Nov. 10.

Considering that the total market capitalization of BTC in the spot markets in the same duration was over $1 trillion, it is highly axiomatic that cryptocurrency options are only in their nascent stages and, even notwithstanding, play a vital office in the toll discovery and forecasting abilities for the asset. A like phenomenon is observed when taking a closer look at the OI data for ETH as well.

Cointelegraph discussed the size of the crypto options markets with Igneus Terrenus, head of communications at cryptocurrency derivatives commutation Bybit: "When you compare it either to the options market in the commodities space or what Robinhood offers for stocks, what is currently available in the crypto options market seems to be inadequate for both institutional and retail traders."

Institutional investors could be the game-changer to enable desperate change in the crypto derivatives market by exponentially increasing the size, liquidity and depth of these markets. Goldman Sachs, the investment cyberbanking giant that revived its defunct cryptocurrency trading desk-bound amongst this bull run, predicted that the cryptocurrency options market could exist seen as the side by side frontier for institutional adoption of crypto. The wall street bank themselves announced plans to aggrandize their crypto trading desk-bound to engage with BTC and ETH derivatives products every bit well.

However, Strijers explained that institutional investors coming into the crypto derivatives market place is a slow-moving process, especially due to Know Your Customer (KYC) and due diligence processes. He said, "In November, we accept onboarded more institutional clients than any month earlier — the larger the firm, the longer the mutual onboarding process." He went on to add:

"Now, those large clients have an all-encompassing platform and a due diligence procedure besides, specially the ones offering 3rd party asset direction in some form, similar the multi-billion dollar macro funds, for example."

Other Altcoins play grab upwardly

Currently, there is a liquid options market that exists merely for BTC and ETH on various cryptocurrency exchanges like Deribit, LedgerX, OKEx, FTX and even the Chicago Mercantile Commutation (CME), the largest derivatives substitution in the world for traditional asset classes.

However, there are no options products available for other prominent cryptocurrency tokens like XRP (XRP), Solana (SOL), Binance Coin (BNB), Polkadot (DOT), and many others, even though these tokens have a highly liquid spot market place and even a futures market.

Strijers explained further the reasoning behind this existing scenario: "We plan to make SOL products available soon. Beyond that, it remains to be seen as we require proper market maker coverage at all times, including, for instance, Sunday evening and other times, in all strikes and expiries. Nosotros tin can't rely on a handful of market makers, but need many more."

Related: Cryptocurrency derivatives market shows growth despite regulatory FUD

Still, there is also a liquid futures market that is available for several of the top cryptocurrencies, even including the meme coin Dogecoin (DOGE) and the native token of the nonfungible token (NFT) game Axie Infinity (AXS). Even even so, the OI of the futures-based products of these tokens hasn't even touched $i billion despite the market last one of the longest bull runs that the ecosystem has ever witnessed.

The token, autonomously from BTC and ETH, that has the highest OI for its futures is SOL, standing at nearly $870 meg at the time of writing. Next in the ranks is DOT, with an OI of $573 million, followed by BNB with an OI of $521 million.

Considering that all of these altcoins have a spot market capitalization of over $50 billion, the futures market for these tokens is currently simply a pocket-size proportion of their full market capitalization. This indicates that even though there is a liquid futures market for these assets, its size is very small to have a significant impact on cost, although they exercise play a role in price discovery of the underlying token.

As institutional and retail adoption of cryptocurrencies is seen to be growing by leaps and bounds in the past year, their interest on the derivatives side of the market will also increase over time, especially in one case institutional giants like Grayscale jump to the fore and get heavily involved in this market pushing market and pricing efficiencies for these assets.