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A record $ 3.7 billion of Bitcoin options set to expire on January 29, as speculation intensifies following recent volatility in the cryptocurrency’s price and growing interest in its derivatives .
As of Monday morning, open options contracts were worth around 245,700 Bitcoin – or roughly $ 9.1 billion – according to cryptocurrency data analysis website bybt.com.
Bitcoin options are contracts that give investors the right, but not the obligation, to buy or sell cryptocurrency at a specified price within a specified time period. They give investors the opportunity to make money by betting on the direction of the price, without having to trade the digital currency itself.
Deribit – the exchange that currently facilitates the most Bitcoin options trading – started offering the products in 2018. But interest has risen sharply in recent months, with the price of Bitcoin reaching an all-time high of nearly $ 42,000 earlier this month. It was around $ 36,960 Monday morning.
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Option contracts worth around 101,000 Bitcoin – or $ 3.7 billion at Monday’s prices – are set to expire on January 29, according to data from bybt.com, though not all options lead to an exchange. That’s more than the previous record of around $ 2.4 billion seen on December 25, as Cointelegraph noted.
The options show that speculators are bullish on Bitcoin. As of Monday, open interest in “calls” (which are broadly bets that prices will go up) was considerably greater than open interest in “puts” (bet the price will go down).
“It reflects how [Bitcoin] has grown, even by its own standards, over the past two months, ”said Craig Erlam, market analyst at foreign exchange firm Oanda.
“The movements we see on a daily basis are amazing, so it is only natural that the options are used more.”
The price of Bitcoin has climbed over 300% in the past year and over 60% in the last month.
Analysts say central banks and governments flooding economies with cash amid the coronavirus pandemic has been a key factor, while concerns about inflation and currency devaluation are also factors.
Still, the price of Bitcoin is very volatile, regularly hovering over 10% every day. After hitting its record high of over $ 41,000 on Jan. 8, it fell to nearly $ 30,000 a few days later before rebounding.
Wanting to take part in the action, investors have piled up on products that give them exposure to Bitcoin.
Germany’s publicly traded crypto BTCetc Bitcoin has recorded trading volumes of over 50 million euros ($ 60 million) per day on average so far this year, according to Deutsche Boerse. Grayscale’s Bitcoin Trust has also exploded.
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Options have also become an increasingly popular way to speculate in Bitcoin. The market has been helped by respected institutions such as the arrival of the CME group.
Nicholas Pelecanos, head of trading at blockchain company NEM, said: “Due to the complexity of trading, option volumes give us a good indication of the number of sophisticated investors who have traded Bitcoin.”
Seamus Donoghue, vice president of sales at digital currency security firm Metaco, said: “Institutional adoption of Bitcoin is expected to drive continued underlying growth in futures and options volumes.”
Still, Erlam was more skeptical of what the increase in options trading meant. “The creation and adoption of these instruments is a step forward, but that in no way detracts from the highly speculative character of this instrument,” he said.
JPMorgan analysts said last week that Bitcoin may have to cross the $ 40,000 mark again in the near future if the price were to rise further. If it doesn’t pick up quickly, trend-tracking momentum funds could force the price down, they warned.
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