Institutions are increasingly using documented bitcoin option techniques on alternative cryptocurrencies to protect against price fluctuations and earn extra returns, STS Digital, a principal trader specializing in digital asset derivatives, told CoinDesk.
“Our client base includes token projects and funds, investors with large holdings and asset management firms that manage exposure ahead of liquidity events,” said Maxime Seiler, co-founder and CEO of STS Digital. “Increasingly, we are also seeing these participants apply options strategies 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 later date. A call option represents a bullish bet that gives the buyer the right to buy the asset at a specified price at a later date. A put option represents a bearish bet that protects the buyer against a price decline.
The option seller essentially writes insurance against bullish/bearish moves in return for an upfront compensation, called a premium.
Bitcoin institutions tend to sell options, write BTC calls at levels above the prevailing market price, and collect the premium. This premium represents additional income on top of their spot BTC holdings.
This so-called covered call strategy has been one of the most popular institutional plays since the early crash of 2020. Institutions have also pursued other methods, such as writing bitcoin puts to increase income during price increases, buying puts as downside hedges, and buying call options to participate in the bull run.
Now, institutions and other entities, such as project founders who hold large amounts of altcoins, foundations, venture capital firms and private players, use the same playbook in other cryptocurrencies or altcoins.
According to Seiler, these strategies are increasingly pursued in altcoins since the Oct. 10 crash, when exchanges forcefully closed even profit-making bets (automatic deleveraging) to socialize losses.
“In addition to covered calls, institutions are actively using put sales for yield, downside hedging, and call purchases to gain upside with defined risk. These strategies are increasingly being applied to altcoins as investors look to manage exposure without taking forced liquidation (ADL) risk that drove the October 10 crash,” Seiler said.
“It is a clear example of why options are a more robust way of expressing risk in volatile markets,” he added.
STS Digital is a regulated digital asset trading firm that acts as a master dealer for institutional investors, offering liquidity and bidding opportunities, spot trades and structured products across over 400 cryptocurrencies.
The breadth of its offerings lets the firm meet growing demand for altcoin options, while centralized platforms like Deribit focus on derivatives for majors like ETH, XRP, and SOL.
The firm settles billions in altcoin options annually through bilateral trades. All transactions take place directly between STS and clients, with STS taking the other side of the trade to provide liquidity and immediate execution.
Seiler expects continued growth in options tied to bitcoin and other tokens over the coming years.
“Looking ahead, we see strong and sustained institutional adoption continuing to drive demand for options as the 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.
