Bitcoin prices are driven by upward as well as downward jumps and so the bitcoin implied volatility surface behaves differently from those of established options markets. We analyze tick-level Deribit option price data, demonstrating increasing support for the limits-to-arbitrage hypothesis. Hence market makers are managing order imbalance and inventory more effectively as Deribit bitcoin options trading volumes increases. On the demand side, volatility traders drive both at-the-money and out-of-the-money option prices, the latter also being driven by directional traders. Directional effects were most pronounced during the price bubble of 2021. Further refinements of our tests assess time-to-maturity and time-of-day effects.

We test the joint efficiency of the bitcoin and ether options and perpetual futures markets and identify the determinants of arbitrage opportunities. Our novel fiat-currency-free put–call parity relationship motivates new arbitrage tests for options-only and option–perpetual cross-markets. Bitcoin and ether derivatives markets are becoming more efficient, especially for options of maturity ≥ 15 days. Bitcoin derivative markets are generally more efficient than ether derivative markets, but arbitrage strategies can still be highly profitable even under conservative transaction cost scenarios, which include slippage for large orders, especially during periods of high trading volumes or when the blockchain traffic becomes more congested.