With the Bitcoin (BTC) halving less than 20 days away, some analysts predict that an inflow of capital will accompany the run-up to the event then reduced selling pressure at below-production prices thereafter will catalyze a bullish trend for BTC price. However, Bitcoin options data tells a different story. Let’s take a closer look.
Options open interest on the rise
According to Skew, open interest in BTC options contracts has been increasing since the beginning of April with Deribit holding the majority of the market share. The total BTC options open interest is currently $623 million.
Open interest has been increasing in regulated Bitcoin options as well, with Chicago Mercantile Exchange (CME), Bakkt and LedgerX all showing increased open interest in their Bitcoin options. For example, the CME is currently seeing $11 million in open interest for options contracts, more than double the $5.1 million figure at the start of April.
CME Bitcoin Options - Total Open Interest. Source: Skew
Rising institutional interest is further demonstrated by the recent Grayscale quarterly report, which shows that the Grayscale Bitcoin Trust (GBTC) currently holds 1.7% of the total Bitcoin supply. GBTC also saw its best quarter yet in terms of capital inflows and this is despite the current market turmoil. The report reads:
“Quarter-over-quarter inflows more than doubled to $503.7 million, demonstrating demand is reaching new peak levels, even in a ‘risk-off’ environment.”
Deribit controls 87% of BTC options open interest
Although institutional interest is seemingly on the rise, unregulated exchanges still dominate the market, most noticeably when it comes to options.
Unregulated options account for 92% of the open interest on BTC options, with Deribit accounting for 87% and Okex for 5%. Deribit currently has $542 million in open interest for Bitcoin options.
Meanwhile, LedgerX is currently the most popular regulated exchange for BTC options, with $35 million or a 6% market share.
BTC Options — Open Interest (Prev. day) Source: Skew
Bitcoin options products have been gaining traction as of late, with Binance recently launching BTC options trading on its futures platform. Deribit has seen a steady increase in volume, with March seeing an uptick of 11% to 319,922 BTC options contracts traded.
Put to Call ratio: a bearish scenario
While open interest has been increasing, the Put to Call ratio has been increasing alongside it, having risen from 0.46 to 0.62 in a one-month period.
The Put/Call ratio measures the number of put options versus call options. An increase in put options, which gives the holder the right to sell BTC, is currently pointing to bearish sentiment in the Bitcoin options market.
BTC Options — Put/Call Ratio. Source: Skew
With the Bitcoin halving imminent, the increase in the Put/Call ratio may also suggest Bitcoin miners are hedging their bets against a possible drop in the Bitcoin price, a scenario recently observed with the Bitcoin Cash (BCH) and Bitcoin SV (BSV) halvings.
PlanB’s Stock to Flow (S2F) model estimates the value to be at 10x its current price in 1-2 years, a prediction that will be “make-or-break for S2F model”, according to its creator. However, market sentiment observed through the BTC options market may suggest that the halving will not bring the BTC price rise that so many expect.
While the consensus on an increased put to call ratio usually points towards a bearish outlook, a completely different scenario can be extracted from this metric. Bitcoin trader and popular YouTuber Tone Vays told Cointelegraph:
“I think the majority of the people are wrong. A rising put/call ratio should be bullish for BTC price as most of those puts will expire worthless. Puts are also a good hedging (aka insurance) instrument so people that are hodling bitcoin might be scared that mining will be in trouble and they are buying puts to protect their positions.”