Even As Momentum Waned, Bitcoin Traders Set Sights On $30,000

Despite a slowdown in momentum in the digital-asset market, crypto investors are picking up call options as they hope that Bitcoin will rebound to $30,000 in the near future.

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There was an increase of $9 billion in open interest in Bitcoin options in February. The last time, the coin was at this level, it had been trading around $45,000 and it is currently hovering around $23,700 whereas it had been trading around $45,000 a while ago. Statistically, it is the largest 14-day rate of change in the company's history, and when measured in terms of market capitalization, it represents a record high.

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The majority of the open interest, however, is represented by calls with a strike price of $30,000. That means investors believe Bitcoin could reach that level at some point. In spite of the fact that this implies a lot of leverage in the market, it's strange; implied volatility is much lower than it was last time it was at this level, which indicates weaker interest among traders, according to Noelle Acheson, author of the “Crypto Is Macro Now” newsletter.

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Bitcoin and other cryptocurrencies have had a banner start to the year, with Bitcoin increasing 39% in January, however, over the past few weeks, the gains haven't been as easy to come by as in January.

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As investors start to bet that the Federal Reserve will maintain interest rates at a high level for a longer duration, the price of the coin, along with stocks, has declined since mid-February as investors bet that interest rates will remain high for an extended period of time.

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A high amount of open interest in options might not necessarily mean there is more leverage in the market. “Options could be directionally agnostic,” said Darius Sit, founder, and chief investment officer of crypto options trading firm QCP Capital.

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Christopher Newhouse, a crypto derivatives trader at GSR, a crypto-native market maker in spot and options markets, said that out-of-the-money upside calls flooded the market during this year's rally, which saw Bitcoin test $24,000 as well as $25,000. This is due to the fact that traders were expecting a break above $25,000 which would confirm the bullish trend. The price of bitcoin crossed that level on Feb. 16, but it has since dropped since then, according to data compiled by Trade Algo.

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“Throughout February, traders purchased these OTM bets at elevated levels of implied volatility, which has since resulted in these OTM bets not paying out (as of now) since those options were purchased at elevated levels of implied volatility, which has steadily decreased while the price has remained range-bound. Thus, from both a long-volatility perspective as well as a long-spot price perspective, the buyers of those strikes were losing money,” he said.

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