Bitcoin’s recent price appreciation could have been influenced by reduced open interest in bitcoin options at specific strike prices, according to an analyst.
“Much less open interest at the $40,000 level could be encouraging bitcoin’s recent uptick, with comparably limited supply of delta from hedgers suddenly bereft of optionality to lean against at the big figure,” crypto derivatives trader Gordon Grant told The Block.
Grant said that following the expiration of end-of-month options on Friday, Jan. 26, there was a significant decrease in open interest for short-dated bitcoin derivatives, particularly options.
This is in contrast to the run-up to last Friday’s options expiry, when “an excess of local gamma could have constrained the price of the underlying asset after a short, sharp correction,” Grant added.
The aggregated open interest of bitcoin options across major centralized derivatives exchanges was at a high of over $13 billion going into last Friday’s expiry.
However, total open interest fell by over $3 billion, to $9.88 billion after the expiry date, according to The Block’s Data Dashboard.
Bitcoin open interest focused on $50,000
The largest volume of bitcoin open interest for all upcoming expiry dates now consists of calls at a strike price of $50,000, suggesting bullish market sentiment, according to Deribit data.
Bitcoin options open interest at strike prices for all upcoming expiry dates. Image: Deribit.
In options trading, a call option gives the holder the right, but not the obligation, to buy the underlying asset at a specified price before or on the expiration date.
The fact that there is a large cohort of call options at $50,000 suggests that a considerable number of traders could be anticipating that the price of bitcoin will rise above the $50,000 mark.
Market observers predicted price correction
The bitcoin price has held above the $42,000 mark over the past 24 hours, acting contrary to the predictions of some market observers.
According to Grant, “market analysts and leading crypto soothsayers had forecast a price correction to a low of around $33,600, but so far this has not materialized.”
Last week, BitMEX Co-Founder Arthur Hayes opined that the price of bitcoin would continue to decline. In a blog post, Hayes predicted a 30% correction for bitcoin, which reached approximately $48,000 immediately after the approval of multiple spot bitcoin exchange-traded funds on Jan. 10.
According to Hayes, this correction could bring bitcoin down to the $33,600 level, ultimately establishing a new support zone between $30,000 and $35,000.
“A 30% correction from the ETF approval high of $48,000 is $33,600. Therefore, I believe bitcoin forms support between $30,000 to $35,000,” Hayes wrote in the blog post.
The largest digital asset by market capitalization has traded mostly flat in the past 24 hours and was changing hands for $42,243 at 7:30 a.m. ET, according to The Block data.
Bitcoin has held above the $42,000 mark over the past 24 hours. Image: The Block.
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