After experiencing the most significant bullish position liquidation of the year, cryptocurrency traders have almost immediately flocked back to the options market with optimistic bets.
According to market participants, traders from offshore exchanges and U.S. over-the-counter platforms are buying call options, giving them the choice to purchase Bitcoin later this year at prices of $90,000 or even higher.
Data from Coinglass indicates that approximately $1.1 billion worth of cryptocurrency bets were liquidated on August 4th, marking one of the largest sell-offs this year. During this drop, which began in the Asian trading session, Bitcoin plunged 17%, and Ether lost more than a fifth of its value at one point. Both have since rebounded in price.
Yevgeniy Feldman from SwapGlobal stated that around 50% of open interest in crypto derivatives was liquidated during the plunge.
“People’s long positions were massively liquidated, which was terrifying,” Feldman said. “But on Monday and Tuesday, U.S. hedge funds and institutional participants resumed their bullish bets by purchasing call spreads on Solana and Bitcoin.”
Feldman noted that a key driver behind the rebound is the surge in demand for Bitcoin on Coinbase. This can be observed from the buy-sell ratio, where SwapGlobal’s exchange order data shows the total amount of Bitcoin being bought far exceeding that being sold.
“This imbalance suggests there are substantial buy orders waiting at $49,000 and below,” Feldman said. Bitcoin hit a low of $49,212 on August 5th, the lowest since February this year.
In recent days, offshore exchanges have seen a rapid increase in short-term hedges for lower prices. The put-to-call ratio on Deribit remains high, with more puts being bought than calls in the past 24 hours.
Feldman mentioned that put buying is more prominent on exchanges because retail investors using these platforms tend to move in and out of the cryptocurrency asset class more frequently. In contrast, U.S. institutions holding large amounts of Bitcoin and using OTC platforms are more likely to use options for hedging.
“While the front-end of the curve is heavily skewed towards puts, even after sharp sell-offs, the bias still leans towards calls post the U.S. presidential election,” said Ravi Doshi, head of markets at broker FalconX. “As has been the case for much of this year, traders continue to anticipate a rise in Bitcoin in the second half.”
The bullish outlook for cryptocurrencies this year is partly due to the rising probability of Donald Trump being elected as the U.S. president, who has become a supporter of cryptocurrencies.
According to Doshi, as of the latest data, the largest open interest options in the trading market are the September $90,000 call options, December $100,000 call options, and March $100,000 call options, with a combined notional value of nearly $1 billion for these three options alone.