The cryptocurrency and Bitcoin market is experiencing a significant revival in October, as evidenced by the sharp increase in the volume of open interest in BTC derivatives. Open interest in derivatives markets is a key indicator of the health of the cryptocurrency market, and its recent rise suggests that investors from the traditional finance market (TradFi) are increasingly directing their attention and funds to Bitcoin. This strong upward movement in the BTC price has led to a new all-time high (ATH) in the BTC options market.
The cryptocurrency and Bitcoin market is experiencing quite a revival in October. One of its symptoms is a sharp increase in the volume of open interest in BTC derivatives.
- Open interest in Bitcoin derivatives is increasing, indicating that traditional finance market investors are paying more attention to Bitcoin.
- The Bitcoin options market reached a new all-time high of $16.35 billion in open interest, surpassing previous records set during the 2021 bull market.
- The Bitcoin futures market also saw a surge in open interest, reaching an annual peak of $13.59 billion. This suggests that traditional finance is returning to Bitcoin trading, even though the futures market did not reach an all-time high.
Derivatives: Options vs. Futures
Options give holders the right, but not the obligation, to buy or sell an asset at a specified price on or before a future date. The execution price is determined at the start of the contract, and the option premium is paid upfront.
Futures contracts are agreements to buy or sell an asset at a specified price on a future date. The fixed price is called the futures price.
Both options and futures contracts are financial derivatives, whose value depends on the underlying asset, such as stock indexes, currency pairs, or the spot price of Bitcoin.
Both instruments can be used with leverage, which means that investors can gain exposure to a higher nominal value than their initial investment.
However, there are some key differences between the two instruments. Options positions can be liquidated at any time before the expiration date, while futures positions must be settled on the expiration date. Options also have asymmetric payoffs, meaning that the maximum loss is limited to the premium paid, while the potential profit is unlimited. Futures contracts, on the other hand, have symmetric payoffs, meaning that the potential profits and losses are unlimited.
Open Interest in the Bitcoin Options Market Reaches ATH
The Bitcoin options market has reached new all-time highs (ATHs), with open interest surpassing $16.35 billion on October 26, according to data from Glassnode. This beats the previous peak of $14.15 billion, recorded in March 2023.
The capital inflow coincides with Bitcoin’s breakout from the $31,500 area in July and its subsequent rise to a new one-year peak. On October 23, Bitcoin surged more than 10% from a bottom of $30,000 to close at $33,000. This sharp bullish move has attracted investors who want to participate in the upward trend through derivatives.
Interestingly, the current open interest peaks in the Bitcoin options market surpass even those recorded at the end of the previous bull market in 2021. Twitter user @kellyjgreer noted, “Bitcoin options just surpassed peak open interest from 2021.” At that time, Bitcoin also reached an all-time high of $69,000.
Analyst @Negentropic_ pointed out several factors that create a favorable environment for bullish Bitcoin price action:
- Dominance of call (bullish) open positions on options
- Growing open interest at $8.8 billion
- Strong indicators favoring traders with long positions
- He also identified two key targets: maintaining support at $34,000 and exceeding 100,000 open positions.
In conclusion, @Negentropic_ stressed that the most relevant level now is $34,000. He added that rising open interest could also signal impending volatility, which could lead to either a continuation of the increases or a correction and consolidation in the $32,000 – $35,000 range.
Open Interest in the BTC Futures Market
We are also seeing a similar situation in the Bitcoin futures market, where trading volume reached an annual peak of $13.59 billion yesterday, according to data from Glassnode. This volume corresponds to trading on the largest cryptocurrency exchanges, including Binance, Bitfinex, BitMEX, Bybit, CME, Deribit, FTX, Huobi, Kraken, and OKX. The previous annual peak was $13.43 billion, set on July 13, 2023.
An important difference between new peaks in the options market and futures contracts is that the latter did not reach their all-time highs (ATHs). Looking at the chart going back to 2020, we see that the ATH in futures contracts was generated during the bull market of 2021, when the total volume of open interest was about $24.27 billion, or around 45% above current values.
Despite this, well-known on-chain analyst @WClementeIII noted that in recent days, trading volume on the CME futures market has reached the highest values of 2023. He then concluded that this suggests that institutional investors are still interested in Bitcoin, even though the price has not yet reached its ATH.
FAQs of Bitcoin Derivatives Market Revival
Q 1: What is open interest in Bitcoin derivatives?
A: Open interest is the total number of outstanding contracts that have not yet been settled. It is a key indicator of market health and investor participation.
Q 2: Why is open interest in Bitcoin derivatives increasing?
A: Traditional finance investors are paying more attention to Bitcoin, and the recent price rally has attracted investors who want to participate through derivatives. The Bitcoin options market has also reached new all-time highs.
Q 3: What are the key differences between Bitcoin options and futures?
A: Options give holders the right, but not the obligation, to buy or sell Bitcoin at a specified price on or before a future date. Futures contracts are agreements to buy or sell Bitcoin at a specified price on a future date. Options positions can be liquidated at any time before the expiration date, while futures positions must be settled on the expiration date. Options have asymmetric payoffs, meaning the maximum loss is limited to the premium paid, while the potential profit is unlimited. Futures contracts have symmetric payoffs, meaning the potential profits and losses are unlimited.
Q 4: What is the significance of the Bitcoin options market reaching an all-time high?
A: It is a significant bullish signal, suggesting that investors are confident in Bitcoin’s long-term prospects.
Q 5: What are some of the factors that are creating a favorable environment for bullish Bitcoin price action?
A: These include the dominance of call (bullish) open positions on options, growing open interest, and strong indicators favoring traders with long positions.
Q 6: What are the key targets for Bitcoin in the near term?
A: Maintaining support at $34,000 and exceeding 100,000 open positions.
Q 7: What does the revival of the Bitcoin derivatives market suggest about the future of Bitcoin?
A: It suggests that Bitcoin is becoming increasingly mainstream and institutionalized, and that investors are confident in its long-term prospects.
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