How are options traders positioned in light of the impending halving of Bitcoin?

Written by Rock Buivy

Post Date: 12 Apr, 24

A lot of cryptocurrency traders believe that the next halving will drive up the price of Bitcoin, but what does the options market think about professional traders’ predictions?

Market participants, particularly professional traders, are closely monitoring the changes occurring in the ecosystem as the Bitcoin halving event approaches.

In the past, bullish sentiment has been encouraged by the expectation of halving events, particularly in the months that follow rather than on the actual day of the halved.

This is ascribed to the market’s delayed reaction to the decreased mining production.

An essential part of this ecosystem, bitcoin miners, frequently decide not to sell their holdings on a daily basis.

Rather, they amass, particularly in light of the expectation of an imminent bull market – a conviction reinforced by Bitcoin’s 59% annual growth so far in 2024.

Because of the widespread anticipation of market appreciation, there is less inventory available for purchase, which could lead to price increases.

Nonetheless, other analysts advise against having unduly optimistic expectations about price rises following halving, pointing out that a variety of outside factors have influenced Bitcoin’s price trajectory during the previous 15 years.

These include monetary policy, investor risk appetite, general economic trends, and the relationship between Bitcoin and the stock market. Because of this intricacy, it might be too optimistic to merely depend on past trends from earlier halvings.

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The majority of the June 28 expiry call options are neutral to bullish

Professional traders are increasingly using options methods in anticipation of the Bitcoin halving.

By leveraging positions with a comparatively small upfront deposit, this strategy avoids the direct danger of liquidation that is common in futures markets.

Interestingly, there is a large discrepancy between call (buy) and put (sell) options at Deribit, with the open interest for options expiring on June 28 reaching $4.5 billion.

The number of bullish holdings exceeds the number of bearish positions by a factor of three.

However, given the optimism that permeates the bitcoin trading community, a closer examination of this broad perspective is necessary.

Some call options seem unduly aggressive, with targets as high as $140,000 and $200,000 for the June 28 expiry.

Realistic call options open interest is about $2.72 billion, excluding bets on prices above $90,000. On the other hand, a number of put options were placed prior to Bitcoin rising beyond $50,000, which reduced the possibility that they would be profitable.

There is now very little open interest in put options with a $57,000 or higher strike price of $250 million.

Whether it was because of unforeseeable variables like the successful approval of a spot exchange-traded fund in the U.S., a drop in inflation to 3%, or the lack of a forecasted worldwide economic recession by June 28, bearish were taken off guard by Bitcoin’s surprising performance leap.

As a result, bearish scenarios associated with the Bitcoin halving seem less and less likely.

Will Bitcoin options experience a “death spiral” as a result of the halving?

Previous theories that a “death spiral” caused by a decrease in miner activity and a decrease in block rewards have been repeatedly refuted.

Every 2016 blocks, or roughly every two weeks, the Bitcoin network modifies its difficulty to maintain stability even in the face of varying hashrate levels.

In the event that Bitcoin falls by 32% from its present values to $47,000 by June 28, a fictitious scenario, the open interest for put options would be $422 million.

On the other hand, $670 million is exposed to call options up to $46,000, indicating that the market is leaning towards neutral to optimistic strategies about the Bitcoin halving, at least through the June 28 expiration.

“Amidst speculation, the future of Bitcoin options post-halving remains uncertain, prompting investors to closely monitor market dynamics and regulatory shifts for potential impacts on trading activity.”

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