Crypto traders are adopting a bullish stance while also seeking downside protection as they approach a significant deadline for bitcoin options this Friday. With an impressive $8.5 billion worth of bitcoin options set to expire on Deribit, the world’s leading crypto exchange in terms of trading volume and open positions, traders are keenly watching the market. This figure represents the U.S. dollar notional value of active options contracts, where each contract corresponds to either one Bitcoin or one Ether.
Since the market’s drastic shift during the COVID crash in 2020, the options market has seen rapid growth, largely fueled by institutional investors looking to hedge risks and enhance yields. Options contracts provide traders with the opportunity to pay a fee today for the right to buy or sell cryptocurrencies at a predetermined price in the future. Call options allow buyers to purchase assets at a lower rate, while put options enable sellers to dispose of them at a higher rate, effectively locking in their price. Buyers of calls tend to be bullish on market performance, while those purchasing puts are often more bearish, seeking insurance against potential losses.
Current data indicates that traders are mostly leaning towards bullish positions, as evidenced by the put-call ratio of 0.56. This metric suggests a higher preference for calls versus puts, demonstrating a bullish sentiment among traders. Sidrah Fariq, the Head of Retail Sales and Business Development at Deribit, noted in a Telegram discussion that this bullish bias implies traders are anticipating robust price movements before the month concludes.
However, despite the overall optimism, Bitcoin’s performance has only seen a modest increase of 2% this month, according to CoinDesk. This figure may improve in light of upcoming events, particularly if the Federal Reserve’s rate decision on Wednesday signals a loosening of fiat liquidity. Bitcoin, like many technology stocks, typically thrives in low-interest-rate environments.
In anticipation of the Fed’s forthcoming announcement, some traders are securing put options to mitigate potential risks. Recent trading activity has revealed significant use of put diagonal calendar spreads, particularly focusing on January 30 strikes, with heightened interest in Bitcoin puts at the $88,000 and $85,000 levels noted over the last 24 hours. Fariq attributes this behavior to traders seeking to shield themselves from volatility linked to macroeconomic events, rather than expecting a significant market downturn due to policy changes.
Additionally, Friday’s options expiry will coincide with the expiration of ether options valued at $1.3 billion. While monthly and quarterly options expiries can lead to short-term market fluctuations, lasting impacts appear unlikely due to the relatively small size of the options market compared to spot trading. For reference, Bitcoin’s upcoming $8.5 billion expiry constitutes less than 1% of its overall market cap, which stands at approximately $1.7 trillion, insufficient to induce long-term market upheaval.
