Author: David Pan, Bloomberg; Translated by: Wuzhu, Golden Finance
Cryptocurrency traders almost immediately jumped back into bullish bets in the options market after the worst liquidation of long positions this year over the weekend.
Offshore exchanges and U.S. over-the-counter traders are buying call options that give them the chance to buy Bitcoin at $90,000 or even higher later this year, according to market participants.
About $1.1 billion in cryptocurrency bets were liquidated on Aug. 4 in one of the biggest sell-offs this year, according to Coinglass. Bitcoin plunged 17% and Ethereum lost more than a fifth of its value at one point in the plunge that began in Asian trading. Both were up by Tuesday. About 50% of open interest in cryptocurrency derivatives was liquidated during the rout, said Yevgeniy Feldman of SwapGlobal, which provides prime brokerage and swaps services to institutional investors.
“People were getting liquidated en masse on long positions, which was scary,” Feldman said. “But U.S. hedge funds and institutional players that trade options through over-the-counter desks on Monday and Tuesday restarted bullish option bets by buying Solana and bitcoin call spreads.”
Source: Deribit
Feldman said one of the main factors driving the rebound in bitcoin prices is a surge in demand for bitcoin from Coinbase Global Inc. The total amount of commitments to buy bitcoin far exceeds the total amount of commitments seeking to sell, as shown by the buy-sell ratio, according to exchange order book data collated by SwapGlobal.
“This imbalance suggests that there are a large number of buyers waiting for prices at $49,000 and below,” Feldman said. Bitcoin fell to a low of $49,212 on Monday, its lowest level since February.
Short-term hedging of lows has increased rapidly on offshore exchanges over the past few days. Deribit’s put-to-call ratio remains elevated, with more puts bought than calls in the past 24 hours. Feldman said put buying tends to be more pronounced on exchanges because retail investors using such platforms tend to trade in and out of the crypto asset class, while U.S. institutions that hold large amounts of bitcoin and use over-the-counter desks hedge options more.
“While the skew at the front end of the curve was heavily weighted toward puts, post-(U.S. presidential) election, even after the sharp sell-off, the skew remained weighted toward calls,” said Ravi Doshi, head of markets at prime broker FalconX. “As has been the case for much of this year, traders continue to expect a bullish second half for bitcoin.”
As of today, the September $90,000 call, December $100,000 call and March $100,000 call are the largest open interest contracts on the listed market, with the notional value of just these three options approaching $1 billion, Doshi said.Bitcoin prices rose about 4.5% to $56,850 in New York on Tuesday.
The bullish outlook for cryptocurrencies at the end of the year is partly due to the rising likelihood of Donald Trump’s reelection as U.S. president, who has become a supporter of cryptocurrencies.
