A record $ 3.7 billion worth of bitcoin options is set to expire on January 29, as speculation intensified following recent volatility in the price of cryptocurrencies and increased interest in its derivatives.
According to the cryptocurrency data analytics website bybt.com, on Monday morning, the open option contracts were worth approximately 245,700 bitcoins, or $ 9.1 billion.
Bitcoin options are contracts that give investors the right to buy or sell a cryptocurrency at a specified price within a certain time period, but not an obligation. They give investors the opportunity to bet on how the price will be priced without trading the digital currency.
Deribit – the exchange that currently features the most bitcoin option trading – began offering products in 2018. But interest has steadily increased over the past few months as the price of bitcoin rose to an all-time high near $ 42,000 earlier this month. It was around $ 36,960 on Monday morning.
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About 101,000 bitcoins – or $ 3.7 billion option contracts at Monday prices – are set to expire on January 29, data from bybt.com show, though not every option will result in trade. This is higher than the previous record of $ 2.4 billion seen on December 25, as Cointegraph noted.
Options suggest that bookies are sharp about bitcoin. As of Monday, the open interest in the “call” (which will largely increase prices) is much larger than the open interest in the “put” (bet the price will fall).
“It shows how unstable [Bitcoin] The past few months have become, even by their own standards, ”said Craig Erlam, market analyst at the currency firm Oanda.
“The steps we are seeing now on a daily basis are incredible so it is natural that alternatives are being overused.”
The price of bitcoin has increased by more than 300% over the previous year and over 60% in the previous month.
Analysts say that amid the coronovirus epidemic, central banks and governments are flooding economies with cash, while concerns about inflation and currency devaluation are also factors.
Yet the price of bitcoin is highly volatile, regularly swinging more than 10% each day. After its record height exceeded $ 41,000 on January 8, it fell to near $ 30,000 just days before rising again.
Wanting a piece of the action, investors have run 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) on average so far this year according to Deutsche Boerse. There is also a boom in Grayscale’s bitcoin trust.
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Options have also become a popular way of betting on bitcoin. The market has been supported by prestigious institutions like the CME Group.
Nicholas Pelecanos, head of trading at the blockchain company NEM, said: “Due to the complexity associated with trading, option volumes give us a good indication of the number of sophisticated investors who are trading bitcoins.”
Seamus Donoghue, vice president of sales at digital currency security firm Metaco, said: “The institutional adoption of bitcoin should continue the underlying growth for futures and options versions.”
Yet Erlam was more confused as to what the rise in options trading meant. “The manufacture and adoption of these devices is a step forward, but it still does not take away from speculative how much a device is,” he said.
JPMorgan analysts said last week that bitcoin may need to break the $ 40,000 mark again in the near future if the price is to increase further. If it does not pick up soon, “momentum” funds that follow the trend could reduce value, he warned.