Is Bitcoin a good investment? That is a question that lot of people think about every day. Open interest, often expressed only by the abbreviation OI, is an indicator expressing the number of open contracts in a given market in a given period of time. In other words, open interest tells us how many positions are currently held. BTC’s OI reached $8.8 billion, with 45% of bitcoin options expiring in 2 weeks.
Over the past two months, OI on bitcoin options has remained reasonably stable, although the figure has risen 118% to $8.4 billion, as the price has risen to a new all-time high. The result of the bitcoin price appreciation and the growing OI of bitcoin options resulted in the expiration of $3.8 billion set for January 29.
To understand the potential impact of such a large expiration, investors should compare it with the volumes observed on spot exchanges. Some figures show a daily volume of bitcoin of more than $50 billion to $100 billion investment. In the past, however, it has been found that many exchanges use various dubious techniques to increase trading volumes.
This is why it is better to collect data from trusted sources when analyzing volume and not to rely on data provided by the largest stock exchanges.
BTC’s spot volume on stock exchanges has averaged $12 billion over the past 30 days, an increase of 215% over the previous month. This means that the upcoming expiration of $3.8 billion means 35% of the daily average volume of BTC spots. Do you think that Bitcoin is a good investment?
45% of all BTC options will expire on January 29
Exchanges offer monthly expirations, although some also have weekly options on short-term contracts. On December 25, 2020, the largest period of validity expired as $2.4 billion in option contracts expired. This figure represents 31% of all OI.
Expiration on Deribit on January 29 contains 94,060 BTC. This unusual concentration represents 45% of contracts that will expire in twelve days. A similar effect applies to other stock exchanges, although Deribit has a total market share of 85%.
OI analysis provides data from trades that have already passed, while the skew indicator monitors options in real time. This indicator is even more important because BTC traded below $25,000 just thirty days ago. This is a good investment into Bitcoin as we take in point the price that was higher than $40,000. Therefore, OI close to this level does not indicate a bearish nature.
Impact on Bitcoin investment
Although the expiration of $3.8 billion in options is significant, almost 60% of options are already considered worthless. As for the remaining OI, the bulls have control of the market. The recent rise in the price of BTC on the new ATH has wiped out most bear options. With the expiration date approaching, a growing number of put options will lose their value if BTC remains above $30,000 to $32,000.