Institutional

Mike Novogratz’s Galaxy Digital rolls out crypto options business as institutional demand grows

Quick Take

  • Mike Novogratz’s cryptocurrency merchant bank Galaxy Digital has ventured into the new business of offering crypto options contracts
  • The move is followed by growing demand from institutions
  • Overall, the crypto derivatives market is seeing increasing interest from firms  

Former hedge fund manager Mike Novogratz’s cryptocurrency merchant bank, Galaxy Digital, has expanded its trading business to offer cryptocurrency options contracts amid the crescendo in demand from institutional investors.

Galaxy Digital’s global head of business development, Yoshi Nakamura, told The Block in an interview at Galaxy’s New York office that cryptocurrency companies like mining firms, lenders, and other projects, including those sitting on treasuries, want to hedge the “inherent volatility risk” of cryptocurrencies.

Hedging is a strategy used by investors to reduce portfolio risk, and thereby losses. Options contracts (both put and call) are one of the more popular tools to hedge against risks when investors are uncertain about a financial instrument’s price movement.

Nakamura said his firm’s options business is “relatively new” and that appetite for it “continues to increase,” without commenting on specific figures. He also declined to share numbers about the business’ growth. 

Ari Paul, chief investment officer and managing partner of cryptocurrency investment firm BlockTower Capital, told The Block that demand for options is indeed rising, which he said is being exclusively driven by non-crypto native firms.

“Traditional hedge funds love to use options,” he said, as it helps spread the risk.

“These counter-parties are going to be new traditional funds and family offices,” Paul said. “I haven’t heard of Polychain, Pantera, etc. being interested in options.”

Galaxy isn’t alone in offering options. Other over-the-counter trading operations such as Akuna Capital have also written options contracts for counter-parties.  Overall, the market for cryptocurrency derivatives products – options, futures, swaps, contracts for differences – has been growing over the past year. Several firms have launched new businesses in the space or are looking to enter the market.

ErisX, Bakkt, SeedCX, LedgerX, B2C2, Deribit are some of the newer firms in the space, while BitMEX and CME have been offering such products for a few years now. Cboe was also offering bitcoin futures contracts until it stopped earlier this year. Binance, the largest cryptocurrency exchange by volume, was also reportedly looking to launch futures trading.