a mountain of options expiring

Regarding the current Bitcoin (BTC) market, there is a sort of elephant in the room that is generally ignored, and that could instead make a difference: the options expiring at the end of the year. 

The options expiring on Bitcoin (BTC)

Options in financial markets are a tool that allows those who purchase them to have the optional right, but not the obligation, to buy or sell at an agreed price and date.

They are mainly used as a hedging tool, since whatever happens, they allow you to sell or buy on a certain date at a predetermined price. 

They are often used also as a form of betting, especially by less experienced speculators. 

There are options on different financial assets, including Bitcoin. 

The main markets where options on BTC are traded are the crypto exchanges Deribit, Binance, OKX, and Bybit, in addition to the Chicago exchange CME. 

At this moment, the Open Interest of options on BTC is heavily skewed towards call options (63%), and only on crypto exchanges has it surpassed 38 billion dollars. 

The call options are those that allow the holders to purchase the asset at a predefined price on a certain date, and therefore they are the bull ones. It is not at all strange that the Open Interest of the options on BTC at this moment is bull. 

The elephant in the room

The problem is another. 

On December 27th, 11.8 billion dollars worth of options on BTC will expire in the crypto markets. 

In reality, many options also expire on November 29, so there are actually two elephants in the room. 

Note that the volumes of options expiring in January 2025 are by far lower, as well as those expiring on November 22. 

Therefore, the attention of the speculators focused mainly at the end of November and at the end of December. 

However, the largest Open Interest is at the end of December, with a clear prevalence of call purchase options, which are about double the put sale options. 

The expiration of year-end options on BTC

It should be remembered that often the bull runs of Bitcoin in the past have ended precisely at the end of the year, between November and December, but in the event that they only started between October and November, they have often extended into the early months of the new year. 

So both scenarios could be likely. Whether the bull run currently underway ends in 2024, or whether it extends into 2025. 

From the expiration of the end-of-December put options, it can be deduced that the minimum price speculators are aiming for is $75,000, which is a price higher than it was before Trump’s victory, and also higher than previous all-time highs. 

But there are also other thresholds. First of all, there are the three psychological thresholds, namely $90,000, $80,000, and $70,000, and then there are also other intermediate ones from $85,000 upwards. Between $70,000 and $80,000, there is only the intermediate threshold of $75,000, while below $70,000, there are several others. 

The lowest among the main ones is set at $40,000, but most are positioned around $70,000. 

The bull forecasts

However, there are also several interesting thresholds regarding call options, that is, purchase options. 

The fact is that the two most important thresholds from this point of view are $90,000, which is more or less the current market value, and $100,000, almost as if the markets at this moment were primarily focused on these two sole price levels. 

The two subsequent, but lower, thresholds are 110,000$ and 120,000$. 

It is noted that the most optimistic speculators are focused on very few future price levels, while the pessimistic ones have less clear ideas, or prefer to keep more possibilities open. 

This, combined with the clear prevalence of bullish open interest, suggests that the markets are indeed bull on BTC at this moment, and that in general they expect to reach the fabled psychological threshold of 100,000$. 

However, these data can change very quickly, because the options market is definitely volatile. It should be remembered that those who buy an option then have no obligation to exercise it, and therefore many can be bought or sold. 

The Dollar Index

At the base of this scenario, there is also a consideration regarding the strength of the US dollar. 

Today, in fact, the Dollar Index recorded its new annual high, at 106.7 points. 

The fact is that starting from December, or from January, a long period of decline is expected to begin, perhaps down to those 90 points that it already reached both in the year after the 2016 elections and in the year after the 2020 elections. 

The trend of Bitcoin’s price in the medium/long term tends to be inversely correlated to that of the Dollar Index, and thus a strong and prolonged decline of the latter could favor a further rise in that of BTC. 

The fact is that, while on one hand the trend of Bitcoin’s price in the financial markets is difficult to predict, that of the Dollar Index is easier to imagine, because in the past it has followed certain dynamics so many times that it is particularly likely to continue following them. 

The inverse correlation of the Dollar Index with Bitcoin is neither direct nor fixed, but when the dollar weakens, it is more than obvious that the big cash holders prefer to use it to purchase assets in the financial markets. Therefore, it is not at all unlikely that this inverse correlation will continue even in 2025.