“This does imply a lot of leverage in the market – but it’s weird, implied volatility is much lower than the last time OI was at this level, which suggests weaker trader interest,” said Noelle Acheson, author of the “Crypto Is Macro Now” newsletter.
Though bitcoin and other cryptocurrencies had a banner start to the year, with the largest digital asset soaring 39 per cent in January, the gains haven’t been as easily gotten over the past few weeks.
Risk assets sold off
The coin, along with other riskier assets like stocks, has declined since mid-February as investors start to bet that the Federal Reserve will keep interest rates at a higher level for a longer time span.
To be sure, high options open interest might not necessarily mean there’s 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.
It was amid the rally this year, which saw bitcoin test $US24,000 as well as $US25,000, that the market saw a flood of out-of-the-money (OTM) upside calls, said Christopher Newhouse, a crypto derivatives trader at GSR, a crypto-native market maker in spot and options markets.
That’s because traders were hoping for a definitive break above $US25,000. Bitcoin had crossed that level on February 16, though it’s declined since then, data compiled by Bloomberg show.
“These OTM bets throughout February failed to pay out (as of now) since traders purchased those OTM options at elevated levels of implied volatility, (which has been steadily declining while price has stayed range-bound), causing the buyers of those strikes to lose from both a long-volatility perspective as well as a long-spot price perspective,” he said.
Bloomberg
