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A record $ 3.7 billion in Bitcoin options will expire on January 29, as speculation rages in the wake of the recent volatility in the price of the cryptocurrency and the growth in interest in its derivatives.
On Monday morning, open-option contracts were worth about 245,700 Bitcoin – or about $ 9.1 billion – according to the website bybt.com of the cryptocurrency information.
Bitcoin options are contracts that give investors the right, but not the obligation, to buy or sell the cryptocurrency at a certain price within a set period of time. They give investors the chance to make money by betting on which side the price is going, without trading the digital currency themselves.
Deribit – the exchange that currently facilitates the most trading in Bitcoin options – began offering the products in 2018. But interest has risen sharply in recent months as the Bitcoin price rose to an everyday high near $ 42,000 earlier this month . It was about $ 36,960 on Monday morning.
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Bybt.com’s data shows that option contracts worth about 101,000 Bitcoin – or $ 3.7 billion at Monday’s prices – should expire on January 29, although not every option will result in a transaction. This is more than the previous record of about $ 2.4 billion seen on December 25, as noted by Cointelegraph.
The options show that speculators are bullish on Bitcoin. As of Monday, the open interest in ‘calls’ (which is generally a bet that prices will rise) was significantly greater than the open interest in ‘calls’ (bet that the price will fall).
‘It just reflects how volatile [Bitcoin] has become even by its own standards in the last few months, ‘said Craig Erlam, market analyst at currency firm Oanda.
“The movements we see daily are incredible, so it’s natural that options are being used more.”
Bitcoin’s price has risen by more than 300% in the past year and by more than 60% in the past month.
Analysts believe central banks and governments flooding economies with cash amid the coronavirus pandemic have been a major driver, while concerns about inflation and currency devaluation are also factors.
However, the Bitcoin price is very volatile and regularly fluctuates more than 10% every day. After hitting a record high of more than $ 41,000 on January 8, it dropped to nearly $ 30,000 a few days later before rising again.
Interested parties wanted a share of the action, and they piled up products that give them exposure to Bitcoin.
According to Deutsche Boerse, German BTCetc Bitcoin Exchange Traded Crypto has seen trading volumes of more than € 50 million ($ 60 million) per day on average so far this year. Grayscale’s Bitcoin Trust also rose.
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Options have also become an increasingly popular way to speculate on Bitcoin. The market has been helped by respected institutions such as CME Group that have relocated.
Nicholas Pelecanos, head of trading at blockchain company NEM, said: “Because of the complexity of trading, the options give us a good indication of the number of advanced investors who have traded Bitcoin.”
Seamus Donoghue, vice president of sales at digital currency firm Metaco, said: “Institutional adoption of Bitcoin should drive continued underlying growth for futures and option volumes.”
Yet Erlam was more skeptical about what the rise in options trading meant. “The creation and acceptance of these instruments is a step forward, but it does not take away from how high the speculative instrument it still is,” he said.
Analysts at JPMorgan said last week that Bitcoin may have to break past $ 40,000 again in the near future if the price is to rise further. If it does not pick up soon, ‘momentum’ funds that follow the trends could force the price down, they warned.