There is a bear hypothesis on the price of Bitcoin, based on the current context of the options market.
However, it is a hypothesis based on an interpretation that might be a bit too simplistic of a market that is actually very complex, so it is necessary to analyze it thoroughly to understand how credible it is.
At the same time, however, the sentiment in the crypto market remains slightly negative, even if probably irrelevant.
The options on Bitcoin
On the financial markets, there are put or call options on the assets that are traded.
A put option is the right to sell an asset at a predetermined price before the expiration of the option itself. A call option is the same thing, but in purchase.
Some crypto options markets are public, so it is possible to analyze how many put options and how many call options are in place.
One of the largest crypto options markets in the world is Deribit, often used as a reference for analyses in this specific field.
Currently, on Deribit, the open interest on call options is much higher compared to put options.
However, the discussion changes if only the trend of the put-call ratio of the options expiring on Friday is taken into consideration.
It concerns 14 billion dollars of options expiring, meaning that after Friday morning they can no longer be exercised.
The problem is that the put-call ratio of options on Bitcoin expiring on Friday has increased just ahead of the expiration, indicating a growing interest in put options.
Where does the bear hypothesis on the price of Bitcoin originate?
Generally, an increase in the put-call ratio is interpreted as a possible bear sign, but it is a superficial interpretation.
This put-call open interest ratio refers to the ratio between active put contracts and active call contracts at a given moment.
Currently, the open interest on call options is still significantly higher compared to that on put options, but specifically regarding Bitcoin options expiring on Friday, there has been a clear increase in the put-call ratio in the last few days before expiration. This clearly indicates an increase in the propensity towards put options, which are used precisely as protection against downside risks, so much so that it is commonly interpreted as indicative of a bear market sentiment.
In reality, however, the situation is more complex.
In fact, this specific increase is partly due to the so-called “liquidity-backed put options.” In this case, it is not about insurance against bear risks, but a strategy for yield generation and accumulation of BTC.
This strategy involves the sale of put options, but with the simultaneous holding of stablecoins to purchase BTC in case prices fall and the buyer decides to exercise the right to sell at the higher predetermined price.
Such a strategy also allows for collecting a premium through the sale of the put option, which represents a yield with a potential accumulation of BTC, if the buyer of the put option exercises the option.
Well, the head of business development for Asia at Deribit, Lin Chen, stated that although the put/call ratio has risen to 0.72, compared to just over 0.5 in 2024, the put options on the platform are often structured precisely as cash-secured puts.
Chen also specified that about 20% of the calls expiring are “in-the-money (in profit)”, and this would mean that a large number of market participants hold calls with strikes lower than the current BTC spot market rate (about $106,000).
The bearish hypothesis in this case would be about 102,000$.
Volatility
In light of all this, the classic bear interpretation might also prove to be excessively superficial, although in theory it might also be correct.
Chen himself then also added that call option buyers have had good performance in this cycle, and this indicates that there could also be some profit-taking.
In particular, the holders of in-the-money (ITM) call options might choose to cash in the profits, or to cover their positions as the expiration approaches.
All this could at least increase volatility, and this second hypothesis, which does not indicate the direction, appears decidedly more solid.
Chen stated:
“Given that it is an important quarterly expiration, we anticipate greater volatility in relation to the event”.
It should still be specified that in reality, often the majority of calls are destined to expire without being exercised, and this is highlighted by the fact that the 300-dollar call has the highest open interest because traders were probably hoping for a much greater price increase in the first half of the year.
In the end, therefore, the price of Bitcoin could still continue to fluctuate within a range between $100,000 and $105,000, with expectations of volatile trading and a slight bull trend as the deadline approaches.
In reality, the latest flows actually seem to be generally neutral, with traders primarily selling call options at around $105,000 and put options at around $100,000.
