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Bitcoin options data shows whales betting big — Will $50K BTC come in January?

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Bitcoin (BTC) options open interest reached an unprecedented milestone, surging to a staggering $20.5 billion on Dec. 7. This remarkable achievement signifies the active involvement of institutional investors in the cryptocurrency space. Unlike futures contracts, BTC options come with predetermined expiration prices, offering valuable insights into traders’ expectations and the markets’ sentiment.

At the forefront of the Bitcoin options market stands Deribit, boasting an impressive 90% market share. The exchange currently holds a substantial $2.05 billion open interest for options expiring on Jan. 26. However, it’s worth noting that a significant portion of these bets may lose their value as the deadline approaches.

Deribit BTC options open interest for Jan. 26, BTC terms. Source: Deribit

Nonetheless, with the prospect of a spot exchange-traded fund (ETF) gaining regulatory approval, previously sidelined bullish bets are reentering the playing field.

How costly is a Bitcoin call (buy) option?

Presently, the $54,000 call option set to expire on Jan. 26 is trading at 0.02 BTC, equivalent to $880 at current market prices. This option necessitates a 25% increase in Bitcoin’s value over the next 49 days for the buyer to turn a profit. It’s noteworthy that sellers can hedge their positions using BTC futures while pocketing the options premium, mitigating some of the perceived risk associated with this trade.

Analysts have emphasized the significance of the $250 million open interest stemming from the $50,000 call options on Deribit. At the current price of $44,000, these options are collectively valued at $8.8 million. This valuation could experience considerable growth if regulatory authorities greenlight the spot ETF plans. However, it remains uncertain whether the buyers of these $50,000 call options intend to employ them for bullish strategies.

The relatively modest demand for call options within the $70,000 to $80,000 range, accounting for less than 20% of the open interest, suggests a lack of exuberance among bulls. These options, with an exposure of $285 million, are currently valued at just $1.2 million. In comparison, the open interest for $60,000 and $65,000 call options set to expire on Dec. 29 amounts to $250 million.

Turning to the put options, traders appear to have positioned themselves cautiously for the January expiry, with 97% of bets placed at $42,000 or lower. Unless the current price trajectory undergoes a significant reversal, the $568 million open interest in put options may face bleak prospects. Nevertheless, selling put options can offer traders a means to gain positive exposure to Bitcoin above specific price levels, though estimating the exact impact remains challenging.

Related: SEC discussing ‘key technical details’ with spot crypto ETF applicants- Report

Bitcoin put options should not be dismissed (yet)

The open interest in Jan. 26 call options surpasses that of put options on Deribit by a factor of 2.6, signaling a greater demand for neutral-to-bullish strategies. While the allure of the $50,000 call options is undeniable and holds the potential to drive Bitcoin’s price higher, it’s essential to remember that the expiration price is determined solely at 8:00 UTC on Jan. 26, making it premature to expend substantial efforts at this stage.

For Bitcoin bears, the ideal scenario hinges on the ETF proposal being rejected, although the SEC may request additional time to reach a final decision, especially considering recent amendments to many filings. Presently, industry experts, including senior ETF analysts at Bloomberg, estimate a 90% likelihood of approval in 2024, a projection extending beyond January.

With 49 days remaining until the Jan. 26 expiry, prematurely dismissing the 97% of put options as worthless seems unwarranted. Additionally, bears have the regulatory landscape on their side, as the trial involving Binance and its founder, Changzeng Zhao, has only just commenced.