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Deribit exchange reports ‘unusual proportion’ of puts trading

Manu Naik

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Recently on Twitter, Bitcoin and ETH derivatives data analytics firm, Skew, reported an unusual proportion of puts trading on the Deribit exchange over the last two days. Generally, put options become more valuable as the price of the underlying asset depreciates in value relative to the strike price set on the contract. An increase in put contracts likely means that more market participants are bearish on Bitcoin’s price action for the next term.

However, Bitcoin has been consolidating mostly above the $7,000 mark, meaning traders might be trying to arbitrage their investments in case BTC dips further down. Additionally, Skew market’s analytics showed a giant spike in open interest for options contracts expiring on the 27th of December, with the maximum open interest for contracts at a strike price of $10,000.

Further, open interest for 27 December was over 6 times more than the open interest for contracts expiring on 20 December, and almost 11 times more than contracts expiring on 31 January. The Deribit exchange also saw its Bitcoin Options open interest drop from 71K BTC to 54K BTC on 29 November. At the time of writing, open interest has risen back up to 61K BTC. Skew markets also highlighted that the market had placed a 10% probability in BTC crossing $8,000 in December.

To answer Skew market’s question, “Market bearish?” the answer isn’t entirely clear. While the rising proportion of puts trading on the exchange could be a sign of traders looking to profit on the depreciating Bitcoin value, it could just be an influx of cautious traders looking to hedge their investments. The last time Deribit saw such a high ratio of puts to calls on options was towards the end of September after BTC dropped by 23% in three days.

The spike in open interest for 27 December shows that quite a few traders are looking to trade Bitcoin monthly options. Regardless, the rise in total open interest since last month shows that even if market participants are bearish, they’re actively looking to profit off it.

Manu is a full-time journalist at AMBCrypto covering the US and Indian markets. A graduate in engineering, he writes mainly about regulations and its impact with a focus on technological advancements in the crypto space.