In a surprising market development, Bitcoin recently surged past the $100,000 milestone, only for derivatives traders to promptly begin hedging against a potential significant pullback.
While the breakthrough generated considerable optimism, data reveals that options market participants are increasingly seeking protection. According to Amberdata, a digital asset market data provider, the put options with strike prices of $95,000 and $100,000 saw the largest open interest increases over a 24-hour period. There was also notable demand for puts at the $75,000 and $70,000 levels.
Luke Nolan, a Research Assistant at crypto asset manager CoinShares, noted, “When we break it down by expiration, we can see that put open interest is primarily concentrated at the end of December and the end of January next year, with some in late February. This is logically sound as a hedge against any pullback or unexpected events following this significant rally.”
A Closer Look at Market Sentiment
Although this hedging activity is concentrated in early 2025, data from Deribit indicates that the total open interest for these put options remains lower compared to the open interest for call options expiring in the same period.
Bitcoin finally breached the $100,000 mark during Asian trading hours on Thursday. This rally was largely fueled by market optimism that elected President Trump’s appointment of a digital asset advocate as the next SEC Chair would further integrate cryptocurrencies into the mainstream. Since the election last month, Bitcoin, a key indicator of market sentiment, has climbed approximately 50%.
However, the price encountered volatility, dipping sharply near the $90,000 level early Friday before partially recovering.
Leverage and the Perpetual Funding Rate
Despite the landmark price achievement, traders had repeatedly failed to break the $100,000 barrier in recent weeks. During this time, leveraged long bets continued to accumulate heavily.
A key metric for measuring leverage in the crypto market, the funding rate for perpetual futures contracts, is approaching its all-time highs. This data indicates that traders are willing to pay a significant premium to increase the leverage on their long positions. Perpetual contracts are one of the most common products investors use to amplify directional bets on Bitcoin’s price.
Brian Strugatsky, Head of Trading at major crypto broker FalconX, commented, “Bitcoin’s recent break above $100,000 caused funding rates to spike significantly, nearing year-to-date highs from March and approaching the all-time highs set in Q4 2021. This pattern mirrors previous bull markets where such spikes in funding rates accompanied strong price momentum, reflecting high demand for leveraged positions.”
Bullish Signals Elsewhere in Derivatives
The bullish sentiment is also evident in other segments of the crypto derivatives market. The premium on CME Bitcoin futures contracts—a popular choice for U.S. institutional digital asset bets—remains substantial. Furthermore, the options market on Deribit and the newly launched options based on BlackRock’s spot Bitcoin ETF (IBIT) both point to a continued optimistic outlook.
Data compiled by Amberdata shows that over the past 24 hours, short-term call options with strike prices between $100,000 and $110,000 saw the largest gains. Jake Ostrovskis, an OTC Trader at market maker Wintermute, reported that overnight block trades included unsecured calls expiring on December 7th with a $100,000 strike. There were also trades exceeding $2 million in call spreads with strikes between $110,000 and $160,000 expiring on January 25th of next year.
The Double-Edged Sword of High Funding Rates
As previous bull markets have demonstrated, excessively high funding rates can set the stage for a correction.
Bohan Jiang, Head of OTC Options Trading at Abra, stated, “Such elevated funding rates are typically transient. We haven't seen a spike of this magnitude since early March of this year, when Bitcoin’s price was driven higher by ETF inflows and funding rates on Deribit reached an annualized level of 145%.”
Nathanaël Cohen, Co-Founder of digital asset hedge fund INDIGO Fund, offered a note of caution, explaining that while the funding rate is a good gauge of market overheating, it can also be deceptive because it can remain elevated for much longer than anticipated.
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Frequently Asked Questions
What does a high funding rate indicate?
A high funding rate suggests that a large number of traders are using leverage to hold long positions. They are paying a premium to traders holding short positions, indicating extreme bullish sentiment that can sometimes precede a market correction.
Why are traders buying put options after a price high?
Traders purchase put options as a form of insurance. After a strong rally, they seek to protect their gains or hedge their portfolios against a potential sudden and deep price drop, locking in profits while maintaining exposure to further upside.
What is the significance of open interest in options?
Open interest represents the total number of outstanding derivative contracts that have not been settled. An increase in open interest, especially for puts at lower strike prices, shows growing concern or preparation for a potential downward move in the market.
How do perpetual futures contracts work?
Perpetual futures are a type of derivative contract without an expiration date. To keep the contract's price aligned with the spot price, a funding rate is periodically exchanged between long and short traders. This mechanism is central to leverage in crypto markets.
What is the difference between a call and a put option?
A call option gives the holder the right to buy an asset at a set price before a certain date, typically used for bullish bets. A put option gives the holder the right to sell an asset at a set price, used for bearish bets or hedging.
Is high leverage always a bad sign for the market?
Not necessarily. High leverage and funding rates indicate strong conviction and momentum, which can drive prices higher. However, it also increases the risk of a cascade of liquidations if the price moves downward suddenly, potentially amplifying a sell-off. For a comprehensive view of market trends, 👉 access real-time trading data and charts.