The Bitcoin halving is coming — How are options traders positioned?

As the Bitcoin halving event draws nearer, market participants, especially professional traders, are keenly observing the shifts within the ecosystem. Historically, the anticipation surrounding halving events has fostered a bullish sentiment, especially in the months that follow rather than on the exact date of the halving. This is attributed to the delayed impact of the reduced mining output on the market.

Bitcoin miners, who are pivotal to this ecosystem, often choose not to liquidate their holdings daily. Instead, they accumulate, especially under the belief of an impending bullish market—a sentiment strongly supported by Bitcoin’s 59% appreciation year-to-date in 2024. This collective expectation of market appreciation further tightens the supply available for sale, potentially propelling prices upward.

However, some analysts caution against overly simplistic expectations of post-halving price surges, pointing out that Bitcoin’s price trajectory over the past 15 years has been shaped by a myriad of external factors. These include overall economic trends, investor risk appetite, monetary policies, and Bitcoin’s correlation with the stock market. Given this complexity, relying solely on historical patterns from previous halvings may be overly optimistic.

Neutral-to-bullish call options dominate the June 28 expiry

In preparation for the Bitcoin halving, professional traders are increasingly turning to options strategies. This approach allows for leveraging positions with a relatively small upfront deposit, sidestepping the direct risk of liquidation prevalent in futures markets.

Notably, the open interest for options expiring on June 28 at Deribit has reached $4.5 billion, showcasing a significant imbalance between call (buy) and put (sell) options, with bullish positions outnumbering bearish ones by threefold. Yet, this high-level view requires a deeper analysis, as the cryptocurrency trading community tends to lean towards optimism.

There are call options aiming as high as $140,000 and $200,000 for the June 28 expiry, which appear overly ambitious. Excluding bets on prices above $90,000, the realistic call options open interest is approximately $2.72 billion. Conversely, several put options were placed before Bitcoin’s ascent over $50,000, diminishing their likelihood of profitability. Presently, there is a scant $250 million open interest in put options pegged at $57,000 or higher.

Bitcoin’s unexpected performance surge caught bears by surprise, whether due to unanticipated factors like the successful approval of a spot exchange-traded fund in the U.S., a drop in inflation to 3%, or the absence of a predicted global economic recession by June 28. Consequently, bearish scenarios linked to the Bitcoin halving appear increasingly improbable.

Will the halving have a “death spiral” impact on Bitcoin options?

Past speculations about a “death spiral” triggered by reduced block rewards and a consequent drop in miner participation have been consistently debunked. Bitcoin’s network adjusts its difficulty every 2016 blocks (approximately every two weeks), ensuring stability even amid fluctuating hashrate levels.

Considering a hypothetical scenario where Bitcoin’s price drops to $47,000 by June 28, a 32% decrease from current levels, the put options open interest would be $422 million. In contrast, call options up to $46,000 account for a $670 million exposure, highlighting a market tilt towards neutral-to-bullish strategies for the Bitcoin halving, at least by the June 28 expiry.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.