KEY POINTS

  • There are more bullish open interest in the options market than bearish signs
  • Options trading growth correlates with the increase in institutional participation in the market
  • Still despite the maturation of the market, it does not take away cryptocurrency's volatility

A record-breaking $3.7 billion worth of Bitcoin options are set to expire on Jan. 29 as traders anticipate volatility in the rising cryptocurrency prices.

Bitcoin options are contracts that give investors the right, but not the obligation, to buy or sell the cryptocurrency at a specified price within a stipulated time period. They have been witnessing huge demand, particularly among bullish investors.

On Jan. 29, around $3.7 billion worth of BTC options could expire. That is more than the $2.4 BTC options that expired on Dec. 25.

Traders and observers normally look at the bitcoin options market to analyze price movements in spot exchanges. Options data suggests there is now more interest in "calls" than "puts." This means more traders believe that the price will rise compared to those who think that there will be a pullback from here.

According to Craig Erlam, a market analyst at the currency firm Oanda, the options market reflects just how volatile Bitcoin is. "The moves we're seeing on a daily basis now are incredible so it’s natural that options are being more utilized," Erlam told Markets Insider.

"The creation and adoption of these instruments is a step forward but doesn't take away from just how highly speculative an instrument it still is," Erlam added.

The last time some bearish sentiments were observed was on Jan. 10. On that day, Bitcoin's price crashed by 15%. Cointelegraph reported that at this point, bulls are mainly in control because the recent price hike has already obliterated most of the bearish options.

Bitcoin is currently trading sideways. It closed Monday at $36,624 on the cryptocurrency exchange Coinbase. While the cryptocurrency price has retreated around $7,000 from its new all-time high of just below $42,000, the dominant Bitcoin is still up 33% in the last 30 days.

On Dec. 16, Bitcoin successfully breached the previous psychological resistance of $20,000 and it continued its upward price trajectory to current levels.

Analysts have observed the growth options and futures markets linked to the increased inflow of institutional investors in the Bitcoin ecosystem. However, the rise of options trading does not mean that the market is safe, particularly for those investors who are beginning to trade.

Gold-colored Bitcoin coin on ground Gold-colored Bitcoin coin on ground Photo: André François McKenzie on Unsplash