Bitcoin (BTC) Derivatives Market Show Resemblance to 2021 Bull Run, Options Expiry Today

The Bitcoin derivatives market has recorded strong activity recently while resembling closeness to the mega bull run of 2021 when the BTC price touched its all-time high of $69,000.

After reaching $38,000 earlier this week, the BTC price is facing some selling pressure trading 2% down at $36,400 level. However, bullish bets are ON as long as BTC stays above the crucial support of $36,000.

A Look at Bitcoin Perpetual Futures

Indicators such as the cost of perpetual futures trades and the increase in options open interest suggest a resurgence in speculative interest in Bitcoin. Bitcoin has experienced a significant price surge this year, more than doubling in value as it rebounds from a challenging 2022.

The renewed attention comes amid expectations of regulatory approval for the first US spot Bitcoin exchange-traded funds (ETFs). The launch would potentially boost Bitcoin’s accessibility to investors. While the extent of ETF inflows remains uncertain, the prospect of increased demand is motivating riskier trades.

Perpetual futures are a popular form of Bitcoin derivatives with no fixed expiration date. Thus, they are utilized by exchanges to align contracts with the underlying spot price. During bullish periods, the funding rate tends to be positive, indicating that traders anticipating price gains are willing to pay funds to short-speculators as a cost of maintaining their positions.

The rolling seven-day average funding rate for Bitcoin perpetual futures, measured through November 15, has a very close resemblance to the levels observed in the final quarter of 2021. This was the period when Bitcoin was on a rally towards its peak.

Courtesy: CryptoQuant/Bloomberg

Institutional Participation on the Rise

Traders are looking at Bitcoin futures curves to understand where prices might go. The whole curve, based on contracts from CME Group Inc., has moved up compared to a month ago. Before, the curve went up to almost $32,000 for the farthest contract, but now it goes up to nearly $40,000.

The total value of Bitcoin futures open interest on CME is now higher than on Binance, the largest crypto exchange. On Friday, the value of open interest in Bitcoin futures on CME was $4 billion, while on Binance, it was $3.8 billion, according to Coinglass data.

The increase in CME’s open interest compared to Binance suggests that bigger institutions are getting more involved in using futures to bet on the future price of Bitcoin.

BTC Options Expiry Hints Bullishness Intact

A representative from Deribit, the largest crypto options exchange, stated that the total value of outstanding Bitcoin options contracts on the platform reached a new high, hitting about $14.9 billion earlier this week. This surpassed the previous record of $14.4 billion in October 2021, just before Bitcoin reached its peak of nearly $69,000. Open interest refers to contracts that are still active and yet to be settled.

Data from Deribit indicates a prevalence of optimistic options bets on Bitcoin reaching $40,000 and even $45,000 by the end of December. The fact that traders selling these call options are willing to take the opposite side of the bet suggests that $40,000 could become a significant level for Bitcoin’s upward movement.

Friday marks the expiration day for Bitcoin options, with approximately 35,000 contracts set to conclude. The total value for this expiring batch is just below $1.3 billion, as reported by Deribit.

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