Bitcoin Surges $44K; Record Derivatives Activity and Options Market

Bitcoin experienced a notable upswing, approaching the $44,000 mark on Wednesday, fueled by an influx of capital that spurred increased engagement from crypto derivatives traders. 

CoinGlass data reveals that options open interest reached an unprecedented high of approximately $20 Billion, signaling not only heightened liquidity but also a surge in market participants actively involved in cryptocurrency derivatives.

In the past 24 hours, the predominant trend in options trading has been called, representing 60% of the total, while puts accounted for the remaining 40%. Calls, providing traders the right (but not obligation) to buy the underlying asset at a predetermined price until a specified future date, have become the preferred choice. 

The skew towards calls suggests an overwhelmingly bullish sentiment among traders, with call buyers anticipating a potential upward trajectory for the underlying asset, while put buyers adopt a more cautious, bearish stance.

Bitcoin itself witnessed a modest 0.7% increase on Wednesday, reaching a trading price of $43,893 at 1:29 PM ET. Concurrently, the entire cryptocurrency market capitalization experienced a 2.1% uptick, now valued at an impressive $1.7 Trillion.

Analyzing the forthcoming options expiry on January 26, 2024, reveals a concentration of calls, particularly those with a $50,000 strike price, according to data from Velo Data. This clustering of calls implies a collective anticipation among traders for a potential surge beyond this price level in the early months of 2024. 

Interestingly, calls with a $45,000 strike price suggest traders are actively hedging against potential downward movements, demonstrating a strategic risk-management approach. Equally noteworthy is the substantial volume of calls at $75,000, indicating that a segment of traders envisions a substantial price appreciation for Bitcoin in the early months of 2024.

Driving the current rally are four significant factors, as highlighted by analysts. Firstly, the upcoming bitcoin halving, expected in April 2024, is traditionally associated with price increases due to the reduced supply of new coins. Analysts from Bitfinex note that this event is already influencing market dynamics, particularly considering the current highest supply inactivity statistics, especially among long-term holders.

Additionally, the potential approval of spot bitcoin exchange-traded funds (ETFs) is seen as a potential catalyst for a surge in institutional investment. The Bitfinex analysts emphasize the substantial impact that institutional money could have on bitcoin prices, especially if ETFs go live a few months post-approval, creating a speculative window.

Moreover, El Salvador’s profitable Bitcoin venture and the prospect of a Federal Reserve rate cut in 2024 further contribute to the optimistic market sentiment. As the cryptocurrency landscape continues to evolve, traders strategically position themselves amidst these dynamic factors, fostering an environment of anticipation and cautious optimism.

Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.