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A record $ 3.7 billion in Bitcoin options is set to expire on January 29, as speculation escalates after the recent volatility in the price of cryptocurrency and growing interest in its derivatives.
As of Monday morning, open options contracts were worth around 245,700 Bitcoin – or about $ 9.1 billion – according to the cryptocurrency data analysis 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 defined period of time. They give investors a chance to make money by betting on how prices will go, without having to trade their own digital currency.
Deribit – the exchange that currently facilitates most Bitcoin options trading – started offering the products in 2018. But interest rates have increased dramatically in recent months, as Bitcoin’s price has risen to a historic high near $ 42,000 earlier this month. It stood at around $ 36,960 on Monday morning.
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Option contracts worth around 101,000 Bitcoins – or $ 3.7 billion at Monday’s prices – are set to expire on January 29, data from bybt.com showed, although not all options result in a trade. This is more than the previous record of about $ 2.4 billion seen on December 25, as noted by Cointelegraph.
The options show that speculators are optimistic about Bitcoin. On Monday, the number of open contracts in “call options” (which are bets that prices will rise) was considerably greater than the number of open contracts in “put options” (bets that the price will fall).
“This reflects how volatile [Bitcoin] has become, even by its own standards, in the past two months, “said Craig Erlam, market analyst at foreign exchange firm Oanda.
“The movements that we see daily now are incredible, so it is natural that the options are being used more.”
Bitcoin’s price soared more than 300% last year and more than 60% last month.
Analysts say central banks and governments that flood the economies with money amid the coronavirus pandemic have been a key factor, while concerns about inflation and currency devaluation are also factors.
However, Bitcoin’s price is highly volatile, regularly fluctuating over 10% each day. After reaching his record of more than $ 41,000 on January 8, it dropped to close to $ 30,000 a few days later, before rising again.
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Wanting to participate in the action, investors have accumulated 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) a day on average so far this year, according to Deutsche Boerse. The grayscale Bitcoin Trust has also grown.
Options have also become an increasingly popular way to speculate about Bitcoin. The market has been helped by respected institutions, such as the arrival of the CME Group.
Nicholas Pelecanos, head of trading at blockchain company NEM, said: “Due to the complexity involved in trading, the volumes of options give us a good indication of the number of sophisticated investors who have been trading Bitcoin.”
Seamus Donoghue, vice president of sales for digital currency security company Metaco, said: “The institutional adoption of Bitcoin should drive continued growth in futures and options volumes.”
However, Erlam was more skeptical about the significance of the increase in options trading. “The creation and adoption of these instruments is a step forward, but it does not diminish how highly speculative an instrument still is,” he said.
JPMorgan analysts said last week that Bitcoin may need to cross the $ 40,000 mark again in the near future, if the price goes up further. If it does not recover soon, the “momentum” funds that follow the trends could force prices to fall, they warned.
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