Bitcoin options volume and open interest on CME have reached an all-time high amid the banking crisis and a bitcoin rally. 

Open interest, the total number of contracts outstanding in the market, hit $1.3 billion this month, up 67% since the start of 2023. Volumes of bitcoin options are similarly buoyant, jumping to $1.67 billion from $832 million last month — the previous all-time high was $1.1 billion in January. 

Crypto derivatives previously saw an influx following the collapse of FTX as institutional traders moved to regulated venues. The latest rally in volumes is being linked to banking uncertainty and a "risk on" environment by some as cryptocurrency prices have risen since January.

Banking uncertainty and bitcoin's function as a hedge is causing its price to rise, Luuk Strijers, chief commercial officer at Deribit, told The Block. As a result, people are positioning for further upside, with traders buying puts (the option to sell at a specific price) to protect from sharp sell-offs.

Bitcoin's correlation to equities fell in March, and Strijers noted that when the correlation between bitcoin and the S&P falls, options activity rises. Bitcoin is up 70% since the start of the year, trading above $28,000, while the Nasdaq Composite is up over 15%.

Paradigm co-founder Anand Gomes echoed a similar sentiment, telling The Block bitcoin remains the "main story." Following the collapse of Silicon Valley Bank, risk is "back on in a BIG way," and there's been large upside buying since then. "It's been relentless," he said. 

"For context, we just did 50% higher volumes in March than the previous month's high," Gomes said.

Bitcoin's best quarter in years

Bitcoin is on track for its best quarter since the first of 2021, barring any shocks today. 

The leading cryptocurrency by market cap benefited from less liquidity as moves higher are more exaggerated in low liquidity environments. Liquidity has dropped to 10-month lows, according to Kaiko analysts, as market makers lose access to USD payment rails in light of the U.S. regional banking crisis.

"Crypto markets are at their most volatile when liquidity is low. Prices have less support to both the downside and the upside, which could explain bitcoin's rapid 17% surge since the start of the month," Kaiko's Conor Ryder said.

Bitcoin is viewed by some, including Ark Invest's Cathie Wood, as a safe haven during the banking crisis. It experienced significant inflows as stablecoins like USDC faltered, leading bitcoin's dominance (the market cap of bitcoin relative to the market cap of the entire crypto market) to reach its highest point since last June.

Bitcoin traded higher into the Fed's last interest rate decision before paring gains just after Chair Jerome Powell's speech earlier this month. However, with hopes of a Fed pausing on rate hikes on the horizon, the price of bitcoin has begun to inch higher again, as it continues to trade around $28,000 — a "critical resistance to the continuation of this rally," according to market maker B2C2's Adam Farthing.