There is a bearish hypothesis about the price of Bitcoin, based on the current environment of the options market.
However, this is a hypothesis based on an interpretation that is perhaps a little too simple of a market that is actually very complex, so it needs to be analyzed in depth to understand how credible it is.
At the same time, however, sentiment on the crypto market remains slightly negative, although probably irrelevantly so.
Bitcoin Options
In financial markets, there are put or call options on the assets being traded.
A put option is the right to sell an asset at a predetermined price before the option expires. A call option is the same thing, but to buy.
Some crypto options markets are public, so you can go and analyze how many put options and how many calls are out there.
One of the largest crypto options markets in the world is Deribit , which is often taken as a reference for analysis in this specific field.
Currently on Deribit the open interest on call options is much higher than on put options.
However, the situation changes if we only consider the trend of the put-call ratio of options expiring on Friday.
This involves $14 billion in options that are expiring, meaning they can no longer be exercised after Friday morning.
The problem is that the put-call ratio of Bitcoin options expiring on Friday has risen just ahead of expiration, indicating growing interest in put options.
Where does the bearish hypothesis on the price of Bitcoin come from?
Typically, an increase in the put-call ratio is interpreted as a possible bearish sign , but this is a superficial interpretation.
This put-call open interest ratio refers to the ratio of active put contracts to active call contracts at any given time.
Currently, open interest in call options is still significantly higher than open interest in put options, but specifically for Bitcoin options expiring on Friday, there has been a sharp increase in the put-call ratio in the final days before expiration. This clearly indicates an increase in appetite for put options, which are used specifically as downside protection, so much so that it is commonly interpreted as indicative of bearish 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 a question of insurance against bearish risks, but of a strategy for generating income and accumulating BTC.
This strategy involves selling put options, but simultaneously holding stablecoins to purchase BTC in case prices drop and the buyer decides to exercise the right to sell at the pre-determined higher price.
Such a strategy also allows you to collect a premium by selling the put option which represents a return with a potential accumulation of BTC, if the buyer of the put option exercises the option.
Well, Deribit’s Asia business development manager Lin Chen said that while the put/call ratio has risen to 0.72, up from just over 0.5 in 2024 , put options on the platform are often structured just like cash-backed puts.
Chen also specified that about 20% of the expiring calls are “in-the-money (in profit)”, which would mean that a large number of market participants are holding calls with strikes lower than the current BTC spot market rate (around $106,000).
The bearish assumption in this case would be around $102,000.
The volatility
In light of all this, the classic bearish interpretation could also prove to be excessively superficial, although in theory it could also be correct.
Chen himself also added that call option buyers have performed well this cycle, which indicates that there could also be some profit-taking.
In particular, holders of in-the-money (ITM) call options may choose to cash in profits, or cover their positions as expiration approaches.
All this could at least increase volatility, and this second hypothesis, which does not indicate the direction, appears decidedly more solid.
It should be noted, however, that in reality, most calls are often destined to expire without being exercised, and this is highlighted by the fact that the $300 call has the highest open interest because traders were probably hoping for a much greater increase in prices in the first half of the year.
Ultimately, therefore, the price of Bitcoin could still continue to oscillate within a range between $100,000 and $105,000, with expectations of fluctuating trading and a slight bullish trend as we get closer to expiration.
In fact, the latest flows seem to be generally neutral, with traders mainly selling calls at around $105,000 and puts at around $100,000.
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