Bitcoin Derivatives Market Still Nervous About USDC

Paigambar Mohan Raj
Source: NewsBTC

The collapse of Silicon Valley Bank (SVB) led to a plethora of fears being unlocked in the cryptocurrency sector. One of the most significant developments to follow from the chaos was the de-pegging of the USDC stablecoin to the U.S. Dollar. The fifth-largest cryptocurrency project has re-pegged to the dollar at press time. Nonetheless, the re-pegging has not removed worries from the Bitcoin (BTC) derivatives market.

Options contracts posted on Deribit settled in Bitcoin (BTC) trade at a larger implied volatility (IV) premium than contracts listed on Bybit, which were paid in USDC. According to Block Scholes, this is a sign of investor preference for contracts settled in the native currency. The options market’s beliefs for price fluctuations over a given time period are known as implied volatility (IV). Increased implied volatility leads to higher option prices and demand.

Despite being present across the term structure, the difference is particularly visible in longer-duration options. This implies that the market continues to place a relative premium on options that settle in the underlying currency. This is a result of ongoing worries about a further depeg of USDC.

Will Bybit traders suffer for not using Bitcoin?

Bybit and Deribit use the dollar value of the underlying asset to determine the payment (profit/loss) from the options trade. The actual settlement is paid out at Deribit in Bitcoin (BTC), whilst Bybit does so, in USDC. This exposes Bybit traders to volatility in USDC. In addition, a possible stablecoin crash would render Bybit’s options useless.

Settlement is the process of concluding a trading agreement between parties by the exchange of money or the real underlying asset. As per Block Scholes’ report, options on Bybit would be paid at roughly 90% of their stated payment in dollar terms due to the temporary de-peg of USDC tokens to $0.90.

Although USDC has since re-pegged to the dollar, the fear of further de-pegs looms fresh. As of now, there is no proof to support the argument that USDC could crash again.