Crypto derivatives markets are heating up as Glassnode reports that constant open interest has increased in anticipation of a giant move at the top of this 12 months.
Perpetual Open Interest (OI) rose from 304,000 to 310,000 Bitcoin (BTC) as its price briefly hit $90,000 on Monday, Glassnode said on Monday.
The funding rate has also “increased” from 0.04% to 0.09%, indicating that derivatives traders are anticipating a possible market move by the top of the 12 months.
“This combination signals a re-establishment of leveraged long positioning as perpetual traders brace for a possible year-end move,” Glassnode said.
Bitcoin perpetuals are futures contracts that don’t expire and may be held indefinitely. They track the spot price of Bitcoin through a mechanism called the funding rate, which is a daily payment between traders who hold long and short positions.
An increased financing rate signals an upward trend
When funding rates rise, it often means the perpetual price is rising above the spot price and more traders are bullish as they’re willing to pay premiums to carry long positions.
However, it could also indicate possible market overheating, as extremely high rates of interest can indicate overleveraged long positions and possible correction risk.
Bitcoin did not break above $90,000 and had fallen back to $88,200 on the time of writing.
Funding rates for Bitcoin offenders have been increasing recently. Source: Glassnode
Massive options expiration at the top of the 12 months
Market volatility is also amplified by the huge year-end Bitcoin options expiry on Friday, December twenty sixth.
Bitcoin options contracts with a notional value of over $23 billion are set to run out in considered one of the biggest options expiration events ever. Quarter-end and year-end expirations are for much longer than regular weekly or monthly events.
According to Deribit, calls or long contracts are concentrated across the strike prices of $100,000 and $120,000, while puts or short contracts are concentrated around $85,000.
The put/call ratio is currently 0.37, meaning that significantly more long contracts are expiring than short contracts. The maximum pain, or strike price at which probably the most losses are made, is currently $96,000, based on Coinglass.
Unless spot prices rise, most of those contracts shall be worthless upon expiration. A $7,500 gap to maximum pain suggests bullish bets or calls at higher strikes were overly optimistic and can lead to losses.
There is loads of OI at higher strike prices. Source: Deribit
