Bitcoin open interest hits $8.8B

01/18/2021

Bitcoin open interest hits $8.8B as 45% of BTC options expire in 2 weeks.

MARKET ANALYSIS

The open interest on Bitcoin options hit a huge mark of $8.8 billion. Over the past two months the open interest on Bitcoin options was held reasonably steady even as the figure increased by 118% to reach $8.4 billion as (BTC) price rose to a new all-time high. The result of Bitcoin’s price appreciation and the rising open interest on BTC options has resulted in a historic $3.8 billion expiry set for Jan. 29.

In order to understand such a sudden potential impact of large expiry in a short amount of time, investors should compare it to the volumes seen at spot exchanges.

Although some data aggregators display over $50 billion to $100 billion in daily Bitcoin volume, a 2019 report authored by Bitwise Asset Management found that many exchanges employ a variety of questionable techniques to inflate trading volumes.

45% of all Bitcoin options are about to expire by January 29. Exchanges offer monthly expiries, although some hold weekly options for short-term contracts.

Data from Genesis Volatility shows that Deribit’s expiry calendar for Jan. 29 holds 94,060 BTC. That consists of an unusual concentration of 45% of its contracts set to expire in twelve days. A similar effect holds at the remaining exchanges, although Deribit has an 85% market share overall.

By analyzing the open interests, it provides data from trades that have already passed, whereas the skew indicator monitors options in real time. This gauge is even more relevant as BTC was trading below $25,000 just thirty days ago. Therefore, the open interest near that level does not indicate bearishness.

While analyzing the current options market makers are unwilling to take upside risk, the 30% to 20% delta skew is the single most relevant gauge. This indicator compares call (buy) and put (sell) options side-by-side.

A 10% delta skew indicates that call options are trading at a premium to the more bearish/neutral put options. On the other hand, a negative skew translates to a higher cost of downside protection and is a signal that traders are bearish.

Deribit Bitcoin options 30-20% delta skew. The last time some bearish sentiment emerged was on Jan. 10 when Bitcoin price crashed by 15%. This was followed by a period of extreme optimism as the 30%-20% delta skew passed 30.

Whenever this indicator surpasses 20, it reflects a fear of potential price upside from market makers and professionals, and as a result, is considered bullish.

A $3.8 billion options expiry is a sudden and resulting in great change in the market, nearly 60% of the options are already deemed worthless. As for the remaining open interest, bulls are mainly in control. With the expiry moving closer, a growing number of put options will lose their value if BTC remains above the $30,000 to $32,000 range.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the same.

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