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A record $3.7 billion worth of Bitcoin options are set to expire on January 29, as speculation ramps up following the recent volatility in the cryptocurrency’s price and growth in interest in its derivatives.
On Monday morning, open options contracts were worth around 245,700 Bitcoin – or roughly $9.1 billion – according to cryptocurrency data analytics website bybt.com.
Bitcoin options are contracts that give investors the right, but not the obligation, to buy or sell the cryptocurrency at a specified price within a set time period. They give investors the chance to make money by betting on which way the price will go, without having to trade the digital currency itself.
Deribit – the exchange that currently facilitates the most Bitcoin options trading – began offering the products in 2018. But interest has risen sharply over the last few months as the Bitcoin price has surged towards an all-time high near $42,000 earlier this month. It stood at around $36,960 on Monday morning.
Options contracts worth around 101,000 Bitcoin – or $3.7 billion at Monday’s prices – are to to expire on January 29, bybt.com’s data showed, although not every option will result in a trade. That is more than the previous record of around $2.4 billion seen on 25 December, as noted by Cointelegraph.
The options show that speculators are bullish about Bitcoin. As of Monday the open interest in “calls” (which are broadly bets that prices will rise) was considerably bigger than the open interest in “puts” (bets the price will fall).
“It reflects just how volatile [Bitcoin] has become, even by its own standards, over the last couple of months,” said Craig Erlam, market analyst at currency firm Oanda.
“The moves we’re seeing on a daily basis now are incredible so it’s natural that options are being more utilized.”
Bitcoin’s price has soared more than 300% over the last year and more than 60% in the last month.
Analysts say central banks and governments flooding economies with cash amid the coronavirus pandemic has been a key driver, while worries about inflation and currency devaluation are also factors.
Yet the Bitcoin price is highly volatile, regularly swinging more than 10% each day. After hitting its record-high of more than $41,000 on 8 January it fell to close to $30,000 a few days later before rising again.
Wanting a piece of the action, investors have piled into products that give them exposure to Bitcoin.
Germany’s BTCetc Bitcoin Exchange Traded Crypto has seen trading volumes of more than €50 million ($60 million) per day on average so far this year according to Deutsche Boerse. Grayscale’s Bitcoin Trust has also boomed.
Options have also become an increasingly popular way of speculating on Bitcoin. The market has been aided by respected institutions such as CME Group moving in.
Nicholas Pelecanos, head of trading at blockchain company NEM, said: “Due to the complexity involved with trading, options volumes give us a good indication of the number of sophisticated investors that have been trading Bitcoin.”
Seamus Donoghue, vice president of sales at digital currency security firm Metaco, said: “Institutional adoption of Bitcoin should drive continued underlying growth for futures and options volumes.”
Yet Erlam was more skeptical about what the rise in options trading meant. “The creation and adoption of these instruments is a step forward but doesn’t take away from just how highly speculative an instrument it still is,” he said.
Analysts at JPMorgan last week said Bitcoin may need to break past $40,000 mark again in the near future if the price is to rise further. If it does not pick up soon then “momentum” funds that follow trends could force the price lower, they warned.