Bitcoin's Strong 2023 Run: Unpacking Surges, Options Activity, and Investor Confidence
Summary:
The article highlights Bitcoin's 2023 performance, specifically the unprecedented trading activity and dramatic upticks in value. It discusses the possible "gamma squeeze" risk and the need for market makers to cover their exposure. The article also emphasizes the shift in demand from call to put options, ending in a balanced ratio. Investor confidence, signaled through Bitcoin options delta skew, is analyzed and notable points include extreme optimism prior to a 17% rally, the resultant premium in call options, and lack of hedging despite Bitcoin's boosted value. The conclusion encourages further research into investment decisions, given their inherent risk.
Bitcoin's robust performance in 2023, boasting a year-to-date rise of 108%, has investors on their toes, especially with the latest uptick being reminiscent of a similar spike on March 14. Back then, Bitcoin leapt from $20,750 to $26,000 within 48 hours. That hike marked a significant 25.2% expansion in value. Concurrently, 208,000 Bitcoin option contracts were traded in a mere two days, dwarfing the previous record of 132,000 contracts transacted on August 18. Interestingly though, that record fell while Bitcoin's value dropped 10.7%. Bitcoin's options open interest—a record of unsettled option contracts for each expiry—touched a 12-month high on Oct. 26.
With the recent surge in trading activity, some have raised concerns of a possible "gamma squeeze." This model posits that those who make markets in options may need to manage risks based on likely exposure. A recent tweet by Alex Thorn hinted at a possible repeat of the gamma squeeze if Bitcoin values rose above the $35,750-$36,000 range.
Research organizations like Galaxy Research and Amberdata have suggested that Bitcoin options market makers might need to safeguard $40 million for every 2% upward move in Bitcoin's spot price—an impressive figure when compared to Bitcoin's daily adjusted volume of $7.8 billion.
A point of intrigue within the realm of Bitcoin options volume and total open interest is the potential for these instruments to be used for hedging or neutral-to-bullish strategies. Keeping tabs on the demand shifts between call (buy) or put (sell) options could shed light on this uncertainty.
Between Oct. 16 and Oct. 26, neutral-to-bullish call options took the lead, maintaining a ratio consistently less than 1. However, as investors started seeking put options for protection, demand peaked by 68% on Oct. 28. As of Oct. 30, the scale balanced between put and call options as the ratio leveled out at 1.10.
Using the Bitcoin options delta skew can significantly aid predicting investor confidence. When they expect one's Bitcoin value to drop, the delta 25% skew usually ascends above 7%. Conversely, during peak euphoria, they dive beneath negative 7%.
Between Oct. 23 and Oct. 27, Bitcoin bulls using options contracts ahead of a 17% rally paid the highest premium relative to put options in over a year. This outlier signifies extraordinary optimism or confidence, potentially stemming from expectations of a spot exchange-traded fund (ETF) offer for Bitcoin.
Contrarily, even after Bitcoin's value ballooned by 26.7% in the 15 days leading to Oct. 27, the investors did not seek protection to hedge gains—an uncommon occurrence. This fact signifies that even if a call option's initial demand was sparked by potential ETF expectations, the enduring optimism dominates as Bitcoin's value continues to fly high above $34,000.
Activity on the Bitcoin (BTC) options market dramatically bloomed on Oct. 23 and Oct. 24, achieving a level unseen in over half a year. Correspondingly, Bitcoin prices swelled by 17% over two days. Market traders are now debating if the excitement in the BTC option market was solely driven by anticipation for a Bitcoin spot exchange-traded fund or dwindling feat from the recent surge above $34,000. For any investment or trading decision, comprehensive research into the movement's inherent risk is encouraged.
Published At
10/30/2023 8:19:28 PM
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