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The recent Bitcoin volatility regarding the price and the demand has ramped up speculations on future movements. The biggest question mark stands over the record $3.7 billion worth of options. These are set to expire on January 29. Monday morning saw the open options contracts in the amount of $9.1 billion. Or, translated into crypto, 245.700 Bitcoin.
In the crypto market, the options are contracts that give investors an option to trade cryptocurrencies within a certain time period. Importantly, they have a right to buy and sell, not an obligation. The potential transaction is tied to a specified price. This provides an opportunity for investors to profit from betting on the cryptocurrency movement. They don’t have to necessarily trade digital coins themselves.
The biggest part of Bitcoin options trading takes place at Deribit. It’s the largest exchange for facilitating this kind of transaction. Deribit started its operation in 2018. However, over the last few months, Bitcoin went had an unprecedented surge. Earlier in January, it reached a record high of almost $42.000. On Monday, its value was $36,960.
Not all of the options set to expire will lead to a trade. Still, the total amount is way above the previous record. On December 25, $2.4 billion worth of options were on the market. Option’s value this big is a sign that investors are bullish on Bitcoin. Monday’s interest in “calls” was far larger than in “puts”.
Craig Erlam, from currency firm Oanda, commented that this only shows how volatile the Bitcoin market is right now. Even compared to its own standards. The increased utilization of options is a logical result of such big movements. Just in the last month, the Bitcoin value has increased more than 60%. Over the past year, the rise is closer to 300%. German exchange, BTCetc, has traded over $60 million worth of Bitcoins daily so far in 2021. Erlam thinks that the use of options is a step in the right direction, but it’s still a very speculative instrument. In line with that, it should be approached with caution.
The main reason behind the record surge is the amount of cash pumped into the national economies. Due to pandemic, we can expect governments to continue flooding the markets with money. This will inevitably lead to inflation. Investors see Bitcoin as a hedge against these future movements.
As this happens, the options contracts have gain popularity as a way of Bitcoin speculation. The market has even seen major institutions such as CME Group move in. Nicholas Pelecanos, from blockchain company NEM, thinks that the number of options provides an insight into how many sophisticated investors are trading Bitcoin. VP of Sales at Metaco, Seamus Donoghue, feels that the increased volumes of options and futures are driven by mainstream institutions’ involvement in the market.
JPMorgan’s analysts warn that Bitcoin will need to break the $40.000 barrier again to keep growing. Otherwise, it may lose momentum and the funds following the trend could drive it even lower.