The Rise in Bitcoin Derivative Markets Reminiscent of 2021: What Does It Mean?

• The current surge in Bitcoin’s derivative markets is reminiscent of the late 2021 period when the cryptocurrency reached its all-time high.
• The nominal value of open positions in Bitcoin options on the largest crypto options exchange, Deribit, reached a historic peak of around $14.9 billion earlier this week.
• The upward trend in the Bitcoin futures curve based on CME Group Inc. contracts further emphasizes the bullish sentiment among traders.

The incredible performance of Bitcoin in derivative markets is reminiscent of the year 2021, drawing attention to open positions on CME and Deribit data.

Performance in Bitcoin Derivative Markets

The current rise in Bitcoin’s derivative markets is reminiscent of the late 2021 period when the cryptocurrency reached its all-time high. Bitcoin, the largest digital token in terms of market capitalization, saw its price more than double this year, which could be considered a partial recovery from the decline in 2022.

In the derivative sector, especially with increasing open interest in perpetual futures and options, there is evidence of renewed speculative interest in Bitcoin. This increase aligns well with expectations of the possible approval of the first spot Bitcoin exchange-traded funds (ETFs) in the U.S., which could expand Bitcoin’s investor base.

With these developments, the market dynamics of Bitcoin are changing, presenting a scenario closely mimicking its historical highs. There is a clear surge of activity in the derivative markets centered around Bitcoin.

The nominal value of open positions in Bitcoin options on Deribit reached a historic peak of approximately $14.9 billion earlier this week, surpassing the $14.4 billion peak achieved in October 2021.

This milestone occurred just before Bitcoin reached nearly $69,000. The “Realized Cap HODL Waves” measurement, indicating an increase in transactions with young bitcoins, often highlights this trend during bullish markets.

Perpetual futures, a popular Bitcoin derivative with no expiration date, have a positive funding rate, indicating that traders anticipating price increases are willing to pay to maintain their positions. According to CryptoQuant data, the seven-day average funding rate of Bitcoin perpetual futures is at levels observed in the last quarter, signaling a bullish sentiment.

Futures and Options Signal the Rise in Sentiment

The rise in the Bitcoin futures curve based on CME Group Inc. contracts further emphasizes the bullish sentiment among traders. The curve reaching almost $40,000 for the farthest contract indicates a positive outlook for Bitcoin’s price. Additionally, the open position of CME’s Bitcoin futures surpassing that of Binance could be seen as a sign of increasing institutional participation in Bitcoin futures.

Option markets also reflect this optimism, with a significant number of bullish bets suggesting that Bitcoin could reach $40,000 and even $45,000 by the end of December. The willingness of traders to sell call options at these strike prices implies that $40,000 is a critical testing area for the ongoing rise in Bitcoin.

The performance in Bitcoin’s derivative markets creates a sense of déjà vu, reminiscent of an all-time high period, with a resurgence in speculative trading and a bullish sentiment supporting future movements in futures and options. The expectation of the approval of spot Bitcoin ETFs in the U.S. could further amplify this momentum, marking a critical period in Bitcoin’s market history. As Bitcoin approaches critical price levels, the crypto community and investors are closely monitoring how this chapter of Bitcoin’s story will unfold.