Options Traders’ Positioning for the Bitcoin Halving

As the Bitcoin halving event approaches, market participants, particularly professional traders, are closely monitoring the changes within the ecosystem. In the past, halving events have created a positive sentiment in the market, but this typically occurs in the months following the halving rather than on the exact date. The impact of reduced mining output takes time to manifest, as miners tend to hold onto their Bitcoin instead of selling it immediately. This accumulation, combined with the belief in a bullish market, further reduces the available supply for sale and potentially drives prices up.

Analysts warn against having overly simplistic expectations of price surges after the halving. Bitcoin’s price trajectory is influenced by various external factors, such as economic trends, investor risk appetite, monetary policies, and its correlation with the stock market. Relying solely on historical patterns from previous halvings may be overly optimistic.

Professional traders are increasingly turning to options strategies in preparation for the halving. Options allow traders to leverage positions with a small upfront deposit and avoid the risk of liquidation found in futures markets. The open interest for options expiring on June 28 at Deribit has reached $4.5 billion, with bullish call options outnumbering bearish put options by threefold. It’s important to note that the cryptocurrency trading community tends to lean towards optimism, and some options with extremely high targets may be overly ambitious.

There are call options with targets as high as $140,000 and $200,000 for the June 28 expiry, but the realistic open interest for call options is approximately $2.72 billion when excluding bets on prices above $90,000. There is a small open interest of only $250 million for put options pegged at $57,000 or higher, indicating a low likelihood of profitability for bearish scenarios.

Unexpected factors, such as the approval of a spot exchange-traded fund in the U.S., lower inflation, and the absence of a predicted global economic recession by June 28, have caught bearish traders off guard. As a result, bearish scenarios related to the halving are becoming increasingly unlikely.

Speculations about a “death spiral” triggered by reduced block rewards and a drop in miner participation have been consistently debunked. Bitcoin’s network adjusts its difficulty every two weeks, ensuring stability even as the hashrate fluctuates. Even in a hypothetical scenario where Bitcoin’s price drops to $47,000 by June 28, the open interest for put options would be $422 million, while call options up to $46,000 account for a $670 million exposure. This highlights a market tilt towards neutral-to-bullish strategies for the halving at least by the June 28 expiry.