Bitcoin Options Trading Hits One-Month High as Price Turns Bullish
Activity in the bitcoin options market picked up pace on Thursday, as bitcoin’s price jumped above $7,000 and opened the doors for stronger gains ahead of the next month’s reward halving.
Daily trading volume in bitcoin options listed on major exchanges – Deribit, LedgerX, Bakkt, OKEx, and CME – rose to $86.4 million on Thursday, the highest since March 16, according to data provided by crypto derivatives research firm Skew.
Netherland-based Deribit, the biggest cryptocurrency exchange by options volume, contributed more than 85 percent of the total daily trading volume. The Chicago Mercantile Exchange, which is synonymous with institutional activity, traded $832,000 worth of options contracts, a meager 1 percent of the global volume.
Aggregate open interest or number of outstanding option contracts also ticked higher to $642.3 million on Thursday, having bottomed out below $400 million in March.
Meanwhile, bitcoin’s price printed a high of $7,200 and closed Thursday with a 4.5 percent gain, its biggest single-day rise since April 6, according to CoinDesk’s Bitcoin Price Index.
Importantly, the top cryptocurrency by the market value found acceptance above key average resistance at $7,000.
The breakout has revived the stalled uptrend from March lows and could fuel a rise toward $8,000 in the days leading up to the May 2020 halving. The event will reduce rewards per block mined on bitcoin’s blockchain by 50 percent to 6.25 BTC.
Some observers expect the impending supply cut to bode well for bitcoin’s price. “Next month’s halving should serve as a catalyst for more bullish medium to long term price action,” said Lennard Neo, head of research at Stack.
Options market activity, however, suggests investors are making bets (buying put options), possibly to hedge against a potential post-halving price drop or another March-like macro-driven crash in the crypto markets.
The increased demand for put options is reflected in the rise of the put-call open interest ratio to a seven-week high of 0.63, according to Skew data.
Further, one-month, three-month, and six-month 25-delta skews are reporting positive values at press time – a sign that puts are claiming higher prices or drawing stronger demand than call options.
A put option gives the holder the right, but not the obligation to sell an underlying asset at a predetermined price on or before a specific date. Meanwhile, a call option represents the right to buy.
It remains to be seen if halving powers strong gains in bitcoin. Meanwhile, stocks look to have bottomed out on the back of the Federal Reserve’s unprecedented monetary stimulus. Bitcoin, therefore, could remain better bid in the days leading up to the event.
At press time, bitcoin is changing hands near $7,100, representing little change on the day. It is, however, up more than 80 percent from the low of $3,867 registered on March 13.
Meanwhile. traditional markets are reporting an improved risk appetite. Futures tied to the S&P 500 are up over 2 percent alongside impressive gains in the European equities.
Risk assets picked up a bid in Asia after media outlets reported that the University of Chicago Medicine researchers are seeing “rapid recoveries” in 125 coronavirus patients taking remdesivir – an experimental drug from US-based Gilead Sciences.
With stocks reporting solid gains, bitcoin could extend Thursday’s gain by rising toward recent highs above $7,400.