- Many calls at $65,000, $70,000 and $75,000 crossed the tape on dominant crypto options exchange Deribit over the weekend.
- The concentration of activity in these so-called out-of-the-money calls reflects bullish market sentiment.
Dismissive of worries surrounding a potential decline in bitcoin (BTC) prices due to perceived overbought technical conditions and the potential liquidation of assets by troubled crypto lender Genesis, traders in the crypto market are actively acquiring low-cost out-of-the-money (OTM) bitcoin call options, particularly at levels near the cryptocurrency's all-time high of $69,000.
During the weekend, there was notable trading activity on Deribit, the leading crypto options exchange in terms of volumes and open interest, with many call options at strike prices of $65,000, $70,000, and $75,000 changing hands. On Deribit, a single options contract corresponds to one BTC. Call options provide investors with the right to purchase the underlying asset at a predetermined price by a specified date, indicating a bullish stance on the market.
The widespread purchase of calls with higher strike prices reflects a positive sentiment among sophisticated market participants. Kelly Greer, Head of Americas Sales at Galaxy, noted a concentration of open interest in $50,000 calls and observed flows in $50,000, $60,000, and $75,000 calls in the listed options markets for maturities from April to June. This trend suggests that buyers are willing to pay a premium for these positions, indicating a constructive outlook on Bitcoin.
Greer highlighted similarities with previous market behavior, citing a comparable concentration of activity in OTM calls at $30,000 and $40,000 in the final quarter of 2023, which preceded a substantial price rally through those levels.
Historically, positioning in the options market has served as a reliable indicator of impending price movements. The current bullish flows echo the pattern observed during the 2020-2021 bull market when sophisticated participants consistently acquired calls with strike prices at $80,000 and beyond at favorable valuations.
Despite bitcoin's nearly doubling to $50,000 since early October, concerns about overbought conditions arise as the cryptocurrency's 14-day relative strength index surpassed 70, suggesting a potential bearish trend reversal. While an overbought reading indicates a rapid market rally, it is not a conclusive signal of a sustained downturn.
Bitcoin recorded its seventh consecutive day of gains, but the momentum slowed over the weekend, coinciding with the RSI surpassing 70 on daily timeframes. Analysts, such as Alex Kuptsikevich from FxPro, caution that this development may encourage short-term profit-taking, especially as the market approaches the January peak.
Another factor causing unease is the impending forced sale of $1.6 billion in Bitcoin, ether, and Ethereum classics by troubled crypto lender Genesis. The company has sought approval from a U.S. judge to liquidate these assets held in Grayscale's trust products.