Record Bitcoin Call Volumes Target $50,000 By January

Something unexpected is happening in the world of cryptos: yes, prices have soared, but unlike so many occasions in the past two years, they have not been followed by a brutal slams even as the space continues to hit multi-year highs, as if the shorts' enthusiasm to self the fucking rip is evaporating.

Meanwhile, the lack of painful reversal has emboldened bulls, who have pushed bitcoin as high as $45,000 earlier this week (the largest token was trading just shy of $44,000 on Friday), with an influx of capital leading to an uptick in activity from crypto derivatives traders and options open interest hitting an all-time high of around $20 billion according to data from Coinglass. An increase in open interest signals higher liquidity and more market participants.

What's just as notable, is that the majority of the options traded in the past 24 hours have been calls, with a breakdown of 60% calls and only 40% puts.

It's not just the most recent option trades that are bullishly biased: when The Block examined the most notable monthly options expiry on Jan. 26, 2024, the majority of options were calls. Among these call options, those with the highest trading volume in the past 24 hours have a strike price of $50,000, according to Velo Data. This suggests that traders increasingly expect bitcoin to hit $50,000 - a level last reached in December 2021 - by January, when many market observers expect the SEC to finally allow exchange-traded funds to directly hold the cryptocurrency.

The next most traded group of open options were calls with a strike price of $45,000, indicating that traders are protecting themselves against a potential price slide. However, there was also a significant volume of calls at $75,000, implying that some anticipate a near doubling of the price in early 2024.

"The bullish sentiment is thriving," said Luuk Strijers, chief commercial officer of Deribit, the largest crypto options exchange, quoted by Bloomberg.

Combined spot and derivatives trading volume on centralized exchanges rose 40.7% in November, to $3.61 trillion, the highest combined total since March, according to researcher CCData.

Activities in derivatives such as options and futures have continued to dominate crypto trading as they remain one of the few ways for investors to leverage bets after a slew of major crypto lenders imploded in 2022. In addition, cash-settled options and futures contracts can help traders execute their strategies without having to handle crypto-specific issues like custody.

Combined spot and derivatives trading volume on centralized exchanges rose 40.7% in November, to $3.61 trillion, the highest combined total since March, according to researcher CCData.

“Volatility has been dropping like a stone for most part of the year,” said Jaime Baeza, founder and CEO at crypto hedge fund AnB Investments. “The environment has been low volatility, reduced volumes, reduced interest rates in the crypto ecosystem and overall reduced interest in the industry.”

Now with an Bitcoin ETF likely on the horizon and risk taking is returning to the broader financial markets, traders anticipate more interest in crypto.

“We’ve seen this year that as BTC moves higher, volatility has followed,” said Greg Magadini, director of derivatives at Amberdata. “So a sustained bull market might bring back some more volatility in the short and medium term.”

According to Bitfinex analysts, there have been four major factors driving the latest bitcoin rally. Among these are the upcoming bitcoin halving, the possible approval of spot bitcoin ETFs, El Salvador's bitcoin bet creeping into profit, and a potential Federal Reserve rate cut in 2024.

"The bitcoin halving, expected in April 2024, has traditionally led to price increases due to the reduced supply of new coins. This event is associated with supply scarcity, driving up the price. Combined with the fact that we currently have the highest supply inactive statistics, especially for long-term holders, this effect is already in play," the Bitfinex analysts said in a note sent to The Block.

The analysts added that if a spot bitcoin ETF gets approved, it could open the gates for a surge in institutional investment. "The potential impact of institutional money on the bitcoin price could be important. In addition, the ETFs will go live a couple of months post the approval, which would imply an increase in the speculative window post such a bullish announcement," the Bitfinex analysts said.

According to Bitfinex, El Salvador's bitcoin adoption and further adoption by other nations or major companies could also bolster the value and credibility of the digital asset. "A major development has been Argentina electing a pro-bitcoin head of state in an economy struggling with inflation," the analysts added.

Lastly, the Bitfinex note said that if central banks globally start to cut interest rates, it could make riskier asset classes like crypto more attractive. "2022-23 has seen a very high correlation in monetary policy with crypto price trends and monetary policy," the Bitfinex analysts said.

To these one can also add the recent surge in capital outflows from China, a move which has traditionally been accompanied by an aggressive jump in the price of bitcoin, as we correctly predicted in September, when with Bitcoin trading at $26, we said the token was set to appreciate notably.