‘Strong’ Bitcoin sentiment drives $2.2bn in bullish bets amid record volume

Bitcoin investors may be positioning themselves for another rally in the top cryptocurrency after weeks of sideways price movement.

Options data compiled by basedmoney.io shows that of the $4 billion worth of Bitcoin options set to expire on Friday, over $2.2 billion are calls — bullish bets that Bitcoin’s price is about to increase.

And bullish call options set to expire this week “significantly” outweigh puts. That signals “a strong bullish sentiment,” Darius Tabatabai, co-founder at decentralised exchange Vertex Protocol, told DL News.

This, Tabatabai noted, comes despite some major headwinds in the industry.

On Wednesday, top crypto exchange Binance was fined $4.3 billion for failing to guard against money laundering and terrorist financing.

While some have cast the event as a blow to the crypto industry, others see it as a positive because it resolves many of the exchange’s regulatory woes.

Options are financial derivatives that let traders speculate on price moves or hedge against market volatility.

In October, Bitcoin options trading volume hit an all time high of $24 billion amid optimism about the approval of spot exchange-traded funds for the top cryptocurrency.

But despite muted price movement in November, options volume registered another record, said Edouard Hindi, chief investment officer at Tyr Capital, an institutional digital asset manager.

Hindi told DL News that the new record high of $25 billion “points towards higher sophistication in the crypto market.”

In other words, more big players in the traditional financial sector are betting on Bitcoin using options.

Hindi said that market makers are short November and December strikes from $37,000 up to $42,000.

“This makes the likelihood of a swift move up in the underlying more likely,” he said, thanks to a strategy called negative gamma hedging, which can exacerbate price swings.

Options market positioning shows Bitcoin’s downside may also be limited.

According to Tabatabai, a large number of options contracts are clustered around $32,000, which he views as a significant level of support for Bitcoin.

Some analysts aren’t so sure a resumption of Bitcoin’s rally is imminent.

Bosslmp, a pseudonymous options trader and advisor to DeFi options protocol Dopex, told DL News that traders appear to be selling November volatility while buying more options that expire in January and March.

This isn’t necessarily because traders are positioning for higher future prices, Bosslmp said, and could instead be because they are selling the current volatility and hedging their bets.

However, Bosslmp also noted that spot Bitcoin volatility is returning.

Tabatabai also said activity in the spot market supports a bullish thesis.

“We appear to be resuming a pattern of higher highs and higher lows, indicative of a rally,” he said, adding that regulatory clarity in the US and excitement over a spot Bitcoin exchange-traded fund means that if the uptrend continues, it “could potentially last for some time.”

Tim Craig is DL News’ Edinburgh-based DeFi correspondent. Reach out to him with tips at tim@dlnews.com.