Trading firms scrambling amid bitcoin price surge

Options sellers are facing a call option squeeze and future indicators are growing less bullish as markets adapt to bitcoin’s sudden ascent

article-image

Jaruwan Jaiyangyuen/Shutterstock modified by Blockworks

share

Trading desks are springing into action as bitcoin’s price and crypto dominance test levels not seen for the better part of a year.

The price of bitcoin topped $35,000 for the first time since the 2022 Terra stablecoin collapse after BlackRock’s iShares Bitcoin Trust was listed on the DTCC’s website — driving speculation that SEC approval of a spot bitcoin ETF was imminent. The listing was removed earlier today.

According to experts who spoke with Blockworks, in the immediate aftermath of bitcoin’s surge, derivatives buyers are being forced to unwind short positions, possibly contributing to the price spike. 

In the longer term, volatility indicators may be showing cooling sentiment from funds betting on bitcoin’s (BTC) price movement. 

Read more: BlackRock bitcoin ETF no longer listed on DTCC’s website

Options sellers face a squeeze

Spencer Hallarn, global head of OTC trading at GSR, said in a statement shared with Blockworks that price increases driven by speculation on approval for a US spot bitcoin ETF have led to a short squeeze on derivative positions. 

After facing margin calls on their “short volatility positions,” option sellers are “buying back sold call options” and thus driving up bitcoin’s price, Hallarn said.

Notably, the derivatives exchange Deribit announced Monday that it would be raising its margin requirements “in light of potential rapid price and volatility movements.” The increased margin will force traders to put up more collateral, in theory protecting against a liquidity crunch.

In a message shared with Blockworks, Luuk Strijers, Deribit’s chief commercial officer, said the platform’s reserves are safe and Deribit has “plenty of margin for all open positions.” A Deribit representative added that the company hasn’t seen its current levels of trading activity since 2021.

Sentiment indicator shows funds reining in expectations

After funds work through call option headaches, analysts are predicting a price reversion. 

QCP Capital said in its markets report that risk reversals, an indicator for investor feelings on future volatility where higher figures imply bullishness, reached their highest point in the past year during bitcoin’s climb. The report adds that “derivative markets are implying…that levels are a little stretched here” and the fund is closing out some of its bitcoin exposure.

QCP’s risk reversal chart, shared with Blockworks, shows risk reversal falling to levels consistent with the past few months after its momentary peak.

“You would expect a little retracement even if you assume that we are in a real upturn,” Matteo Greco, research analyst at Fineqia International, said. 

Greco cautioned against making too much of indicators like risk reversal without knowing the precise strategy with which funds entered the current upswing.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2023

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research Report Cover Vertex.jpg

Research

The proliferation of new perp DEXs has led to fragmented liquidity across various DEXs and chains. Vertex, known for its vertically-integrated DEX that includes spot, perpetual, and integrated money markets, is now tackling cross-chain liquidity fragmentation through horizontal integration with the launch of new Edge instances. Vertex's integrated offerings and cross-margined account structure amplify the benefits of new instances: native cross-chain spot trading, optimized cross-chain basis trading, consistent interest rates, reduced bridging friction, and more.

article-image

Partnering with EtherFi and Angle, the fully on-chain perp DEX features bespoke collateral

article-image

Sponsored

Gavin Wood introduced the next evolutionary step for the Polkadot network: the Join-Accumulate Machine, or JAM

article-image

The side events were the places to be at Consensus 2024, according to attendees

article-image

Also, who’s come out swinging in the spot ether ETF fee war — and who could undercut them

article-image

I know it is not in their nature, but US regulators could learn a lot by researching the digital asset frameworks that overseas regulators have already gotten right

article-image

Also, the ETF hype train can count out at least one member