Is there a turning point in sight for bitcoin and ether? If cryptocurrency options traders are any indication, that's exactly what will happen.
According to crypto market creator OrBit Markets, the amount of bitcoin options traded on Deribit, one of the major exchanges for crypto-focused derivatives products, increased by 82% in January compared to December. The price of ether options increased by 38%.
More investors are preparing for price increases, with volume skewed towards bullish call options - paying a premium for the right to acquire bitcoin or ether at a future date and agreed-upon price - rather than bearish put options to sell.
According to Deribit statistics, calls commanded 71.1 percent of total bitcoin futures open interest and 77.5 percent of ether futures open interest.
“You’ve actually seen a couple people trading in $50,000 calls, for example, that’s been the general appetite that we’ve seen – just increased appetite for upside,” said Chinedu Ume-Ezeoke, quantitative research analyst at data firm Laevitas.
However, the spike in volumes suggests that investors are divided about the direction of crypto markets, preferring low-risk, low-reward alternatives to purchasing bitcoin or ether.
The surge in the options markets follows months of tepid trade and little volatility, and corresponds with a 40% increase in the price of bitcoin in January - its greatest month since October 2021 - and a 32% increase for ether.
“Bitcoin’s rally was explosive, almost like imagining the release of a beach ball that had been forced underwater,” said Joe Ziolkowski, the CEO of Relm, a digital asset insurer.
TROUBLE WITH A PULLBACK
According to Laevitas data, total bitcoin futures open interest - the number of contracts yet to be settled - was 293,000 on January 27, the most since November, while the put-to-call ratio was 0.42, the lowest in at least a year, indicating traders preferred calls over puts.
“This is driven by renewed investors demand for call options as they expect spot momentum to continue higher,” said Pulkit Goyal, vice-president of trading at OrBit Markets.
However, the trend in futures may not be optimistic for bitcoin or ether because investors employ these contracts as hedges against decreases in their other investments.
“People are interested in the upside potential of bitcoin and ether, but also concerned about a potential pullback after the massive run-up in prices,” said CK Zheng, founder of crypto derivatives-focused hedge fund ZX Squared.
“On both sides of the equation, people are trying to get some protection.”
REAR RISK AND RECESSION
The macro background of a probable US recession or further Fed tightening is just one of several factors that could undermine the present rise.
Following the release of better-than-anticipated US job numbers last week, investors are wagering that the Fed will raise interest rates even more than predicted, dampening demand for riskier assets such as cryptocurrencies.
“We’re probably not out of the woods yet,” said Ume-Ezeoke at Laevitas. “In the short term, a lot of people are anticipating some sort of correction.”
By fLEXI tEAM