Bitcoin Perpetual Open Interest Grows as Traders Anticipate Year-End Rally

Summary:
Bitcoin's perpetual open interest is climbing as traders look forward to a significant market movement by year-end. Reports indicate that both the perpetual open interest and the funding rate have increased, suggesting a bullish sentiment among derivatives traders.

Key Takeaways

Bitcoin's perpetual open interest has increased from 304,000 to 310,000.
The funding rate has risen from 0.04% to 0.09%, indicating bullish activity.
Market volatility may spike due to a significant options expiry event featuring over $23 billion in contracts.

Bitcoin perpetual open interest rises as traders bet on year-end rally

Rising Perpetual Open Interest Signals Market Activity

Recent data from Glassnode highlights that the perpetual open interest (OI) in Bitcoin has experienced a rise from 304,000 to 310,000. This increase comes as Bitcoin's price reached a high of $90,000 briefly on Monday. The funding rate also saw an uptick from 0.04% to 0.09%, reflecting traders' expectations of a potential market fluctuation as the year draws to a close.

According to Glassnode, "This combination signals a renewed buildup in leveraged long positioning, as perpetual traders position for a potential year-end move."

It's important to note that Bitcoin perpetuals are futures contracts which can be held indefinitely and are designed to follow Bitcoin's spot price through a mechanism called the funding rate. This funding rate acts as a periodic payment made between traders who are holding long (buy) and short (sell) positions.

Increased Funding Rate Indicates Bullish Sentiment

When the funding rates increase, it usually suggests that the perpetual price surpasses the spot price. More traders become bullish and are willing to pay premiums for long positions. However, a rising funding rate might also indicate potential market overheating, as excessively high rates can point to overleveraged long positions and the risk of a market correction.

At the time of this writing, Bitcoin struggled to maintain its position above $90,000 and had dropped back to around $88,200.

Bitcoin perp funding rates have increased recently. Source: Glassnode

Major End-of-Year Options Expiry to Heighten Volatility

Market volatility could escalate due to the massive end-of-year Bitcoin options expiry scheduled for Friday, December 26. In this event, over $23 billion in notional value Bitcoin options contracts will be expiring, making it one of the largest options expiries to date.

Notably, end-of-quarter and end-of-year expiries tend to be much larger than regular weekly or monthly expiries. According to Deribit, there is a clustering of call contracts, or long positions, around the $100,000 and $120,000 strike prices, while put contracts, or short positions, are mainly concentrated at $85,000.

The current put/call ratio is at 0.37, indicating a greater number of long contracts are set to expire versus short contracts. The "max pain" point—the strike price where the most losses occur—is currently located at $96,000, as reported by Coinglass.

If the spot prices do not rise, the majority of these contracts will end up worthless upon expiry. The $7,500 difference to the max pain point suggests that bullish bets placed at higher strikes might have been overly optimistic, potentially leading to losses.

There is a lot of open interest at higher strike prices. Source: Deribit

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