Explainer: What are Bitcoin put options, and why are they important?

Bitcoin is becoming an increasingly important contributor to investors’ portfolios not only because of the returns, but also because the most famous cryptocurrency is increasingly recognized as an important contributor to portfolio performance in terms of versatility.

BTC puts give the holder the right to sell BTC at an agreed price on or before a specified date. In other asset classes, puts are expensive, as they provide an insurance policy against falling prices. But bitcoin puts are comparatively cheap due to the distinguished psychology of crypto market participants, who fear missing the upside more than losing on the downside.

In the world of equities, every trader or investor wants puts because puts are insurance and everybody has to pay for insurance. The cheaper in dollar terms the puts are, the more expensive they are in volatility terms.

In the crypto space, the vast majority of traders are more concerned with missing the upside price movements than they are with protecting against market crashes. As a result, there is less demand for puts and more demand for calls. Puts are cheap and calls are consequently expensive.