The open interest on Bitcoin (BTC) options is just 5% short of their all-time high, but nearly half of this amount will be terminated in the upcoming September expiry.
Although the current $1.9 billion worth of options signal that the market is healthy, it’s still unusual to see such heavy concentration on short-term options.
By itself, the current figures should not be deemed bullish nor bearish but a decently sized options open interest and liquidity is needed to allow larger players to participate in such markets.
Total BTC options open interest. Source: Skew
Notice how BTC open interest has just crossed the $2 billion barrier. Coincidentally that’s the same level that was achieved at the past two expiries. It is normal, (actually, it’s expected) that this number will decrease after each calendar month settlement.
There is no magical level that must be sustained, but having options spread throughout the months enables more complex trading strategies.
More importantly, the existence of liquid futures and options markets helps to support spot (regular) volumes.
Risk-aversion is currently at low levels
To assess whether traders are paying large premiums on BTC options, implied volatility needs to be analyzed. Any unexpected substantial price movement will cause the indicator to increase sharply, regardless of whether it is a positive or negative change.
Volatility is commonly known as a fear index as it measures the average premium paid in the options market. Any sudden price changes often cause market makers to become risk-averse, hence demanding a larger premium for option trades.
BTC 3-month options implied volatility. Source: Skew
The above chart clearly shows a massive spike in mid-March as BTC dropped to its yearly lows at $3,637 to quickly regain the $5K level. This unusual movement caused BTC volatility to reach its highest levels in two years.
This is the opposite of the last ten days, as BTC’s 3-month implied volatility ceded to 63% from 76%. Although not an unusual level, the rationale behind such relatively low options premium demands further analysis.
There’s been an unusually high correlation between BTC and U.S. tech stocks over the past six months. Although it is impossible to pinpoint the cause and effect, Bitcoin traders betting on a decoupling may have lost their hope.
BTC (red) correlation to the U.S. technology sector (blue). Source: Tradingview
The above chart depicts an 80% average correlation over the past six months. Regardless of the rationale behind the correlation, it partially explains the recent reduction in BTC volatility.
The longer it takes for a relevant decoupling to happen, the less incentives traders have to bet on aggressive BTC price moves. An even more crucial indicator of this is traders’ lack of conviction and this might open the path for more substantial price swings.
There’s an unusual concentration of short-term options
Most of the relevant Bitcoin options mature on the last Friday of every month and some concentration on the shortest ones is expected due to covered call trades.
This strategy consists of buying BTC either via spot (regular) or futures markets and simultaneously selling call options.
A covered call is closer to a fixed-income trade, aiming to pocket the substantial option premiums on BTC markets. At expiry, this trader will be liquidating both his positions on spot, futures, and options markets.
BTC options by open interest. Source: Tradingview
The unusual situation displayed on the chart above shows how 53% of the 2020 calendar options are set to mature on Friday, Sept. 25.
By comparison, this is roughly the same amount of open interest for Ether (ETH) options expiring in Sept. and Dec.
There might never be a reasonable explanation for why BTC options are so heavily concentrated but a similar phenomenon occurred back in June which cut BTC options open interest by $900 million.
As of now, there are no signs of weakness from options markets, but as Ether options stand at $450 million, any number below $1.5 billion would certainly not look desirable for Bitcoin.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
Here’s how IOHK’s glow will simplify smart contract writing for Cardano
Blockchain research firm IOHK recently announced the launch of Glow, an open-source programming language on the Cardano blockchain, which will allow anyone to write blockchain-based applications and deploy them on the network. IOHK has partnered with startup MuKn to introduce the domain-specific language.
The language will initially launch on Cardano’s Ethereum Virtual Machine (EVM) developer network (devnet) that currently allows developers to write in Solidity, the smart contract language used in Ethereum.
According to a release shared with AMBCrypto, Glow’s compatibility with EVM will allow developers to write applications with a “significantly smaller number of lines of code.” It will also “simplify and reduce” the cost of the development process. In technical terms, Glow aims to allow developers to write a 20-line application, which will perform similarly to a 100-line application written in other languages. The IOHK team further stated:
The language is said to be portable and once an app is built, Glow can be used on other platforms. Meaning developers will be able to choose a blockchain based on value proposition, rather than being limited by programming language
Aparna Jue, Product Director at IOHK, believed that “interoperability is a key focus for IOHK” and said:
We believe that mainstream blockchain adoption will be driven by the industry providing broad compatibility, breaking down barriers between individual blockchains and their native programming languages, allowing a broad range of developers to onboard. This is why languages like Glow are such an important piece of the Cardano puzzle.
She elaborated that Cardano’s devnet has allowed the testing of smart contract development, with a “variety of different languages” for developers to explore. So far, these include Plutus, and Marlowe, another domain-specific language.
In addition, Francois-Rene Rideau, Co-Founder of MuKn, noted the difficulty of writing a DApp “because you can’t afford any mistakes.” Such mistakes could even result in a significant loss of user funds, “with active adversaries looking for them,” he explained.
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Bloomberg’s ETF whisperer says the SEC could approve a BTC ETF
The Block’s Frank Chaparro talks to Eric Balchunas, Senior ETF Analyst at Bloomberg Intelligence.
The post Bloomberg’s ETF whisperer says the SEC could approve a BTC ETF appeared first on The Block.
Episode 11 of Season 3 of The Scoop was recorded remotely with The Block’s Frank Chaparro and Senior ETF Analyst at Bloomberg Intelligence, Eric Balchunas.
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Regulators in Canada approved two bitcoin exchange-traded funds (ETFs) in recent days, marking the first approvals of their kind for North America.
Since launch, the products have seen considerable inflows. With the demand for a bitcoin ETF now proven, many wonder what a Canadian approval could mean for a U.S. offering.
The Scoop spoke with Eric Balchunas, a senior ETF analyst at Bloomberg, about what an approved bitcoin ETF means for the landscape. During this week’s episode Balchunas broke down the winding road to approval and why Canada was always likely to be a first.
Now that Canada has its BTC ETFs, he argued that an approval from the U.S. Securities and Exchange Commission (SEC) is just around the corner.
“I think it’s just a matter of the SEC coming around, and then once they come around mentally, I imagine it will happen pretty quickly,” he said. “But again, I’m not in that bubble. I’m not a regulatory analyst. That’s just my sense from talking to people.”
- How Canada has historically been a proving ground for novel financial products.
- The differences and similarities in the Canadian and U.S. approval processes.
- Why Balchunas thinks 2021 will be the year of a U.S. BTC ETF approval.
- Why it’s only a matter of time before a meme ETF launches.
© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
Bitcoin Bull Run is Far From Over as FOMO Hasn’t Set in Yet, Analysis Suggests
The price of bitcoin moved from little over $11,000 in October of last year to a new all-time high above $58,000 earlier this month. Despite the massive rise, analysis shows that bitcoin’s bull run likely isn’t over as fear of missing out (FOMO) hasn’t set in yet. According to researchers at on-chain analytics platform Whalemap, […]
The price of bitcoin moved from little over $11,000 in October of last year to a new all-time high above $58,000 earlier this month. Despite the massive rise, analysis shows that bitcoin’s bull run likely isn’t over as fear of missing out (FOMO) hasn’t set in yet.
According to researchers at on-chain analytics platform Whalemap, statistics covering bitcoin buys between $5 million and $7 million concluded that despite the recent highs bitcoin still hasn’t hit its “macro top,” as bull runs in 2017 and 2019 saw buys of a similar size, and only retraced after these investments hit a peak.
On social media, Whalemap shared a chart that shows these large BTC buys are far from the highs seen in 2017 and 2019, and have in fact not started receding yet, implying bitcoin’s recent correction is a healthy one before the cryptocurrency’s price moves up again.
CryptoCompare data shows that in the last 24-hour period, bitcoin moved from around $51,000 to a $44,600 low before it started recovering. As CryptoGlobe reported, multiple large transactions have been spotted leaving cryptocurrency exchange Coinbase to custody wallets, implying institutional investors are still buying bitcoin.
The CEO of crypto data firm CryptoQuant, Ki Young Ju, recently pointed to a massive 13,000 BTC movement out of the San Francisco-based cryptocurrency trading platform and pointed out the funds “went to multiple Coinbase custody wallets.” Per his words, this is the “strongest bullish signal” he has ever seen.
Following up on his tweet, Ki Young Ju noted significant outflows from Coinbase at $48,000, which suggests large investors are accumulating BTC and that the major reason for the price drop is the 10-year Treasury note’s yield going up.
An ongoing rally in U.S. bond yields has been putting pressure on tech stocks and the market itself. Popular analyst Alex Kruger noted that interest rates going up could have a negative effect on assets that benefitted from them dropping, including gold and bitcoin.
Featured image via Pixabay.
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