Bitcoin displays all-time high deja vu with derivatives

In this post:

  • Bitcoin’s recent surge in derivatives markets resembles its late 2021 all-time high, with a notable increase in perpetual futures trades and options open interest.
  • The notional value of Bitcoin options on Deribit hit a record high, indicating a revival in speculative interest, partly driven by expectations of U.S. spot Bitcoin ETF approvals.
  • The upward shift in Bitcoin futures curve and bullish options bets suggest a positive market outlook, with $40,000 emerging as a key price level for Bitcoin’s rally.

Bitcoin’s current surge in the derivatives market is reminiscent of the late 2021 period when the cryptocurrency reached its all-time high.

As the largest digital token by market cap, Bitcoin has seen its price more than double this year, hinting at a partial recovery from the 2022 downturn.

The spark in the derivatives sector, particularly in perpetual futures trades and options open interest, suggests a renewed speculative interest in Bitcoin.

This uptick aligns with expectations surrounding the possible approval of the first U.S. spot Bitcoin exchange-traded funds (ETFs), which could widen Bitcoin’s investor base.

With these developments, Bitcoin’s market dynamics are shifting, creating a scenario that closely mirrors its historic high.

Derivatives Market Fuels Bitcoin’s Ascent

In the derivatives market, a burst of activity around Bitcoin is evident.

The notional value of Bitcoin options open interest on Deribit, the largest crypto options exchange, reached an all-time high of approximately $14.9 billion earlier this week, surpassing the peak of $14.4 billion achieved in October 2021.

This milestone occurred just before Bitcoin hit its nearly $69,000 high. The “Realized Cap HODL Waves” metric, or RHODL waves, underscores this trend by showing an increase in transactions involving younger Bitcoins, which often happens during bull markets.

Perpetual futures, a popular Bitcoin derivative due to their indefinite expiry date, are seeing a positive funding rate, indicating that traders anticipating price gains are willing to pay to maintain their positions.

According to CryptoQuant data, the seven-day average funding rate for Bitcoin perpetual futures is at levels last observed in the final quarter of 2021, signaling a bullish sentiment.

Futures and Options Signal Bullish Mood

An upward shift in the Bitcoin futures curve, based on CME Group Inc. contracts, further highlights the bullish mood among traders. The curve’s rise to nearly $40,000 for the farthest contract suggests a positive outlook for Bitcoin’s price.

Additionally, CME’s open interest for Bitcoin futures recently outstripped that of Binance, pointing to a growing institutional involvement in the Bitcoin futures market.

Options markets also reflect this optimism, with a significant number of bullish bets placed on Bitcoin reaching $40,000 and even $45,000 by the end of December.

The willingness of traders to sell call options at these strike prices implies that $40,000 could be a critical test area for Bitcoin’s ongoing rally.

Bitcoin’s performance in the derivatives market is generating a sense of déjà vu, echoing its all-time high period.

With a resurgence in speculative trading and a bullish sentiment underpinning its movement in futures and options, Bitcoin is navigating a landscape brimming with potential.

The anticipation of U.S. spot Bitcoin ETF approvals further fuels this momentum, setting the stage for what could be a pivotal period in Bitcoin’s market history.

As Bitcoin approaches critical price levels, the crypto community and investors are closely watching, ready to witness how this chapter in Bitcoin’s story unfolds.

Disclaimer: The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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