Crypto derivatives markets are heating up as Glassnode reports perpetual open interest has risen in anticipation of a big move at the end of this year.
Perpetual open interest (OI) has risen from 304,000 to 310,000 Bitcoin (BTC) as its price briefly touched $90,000 on Monday, Glassnode said on Monday.
The funding rate has also “heated up” from 0.04% to 0.09%, which suggests derivatives traders are anticipating a potential market move by the end of the year.
“This combination signals a renewed buildup in leveraged long positioning, as perpetual traders position for a potential year-end move,” Glassnode said.
Bitcoin perpetuals are futures contracts that don’t expire and can be held indefinitely. They track Bitcoin’s spot price through a mechanism called the funding rate, which is a periodic payment between traders holding long and short positions.
Increased funding rate signals bullishness
When funding rates are increasing, it typically means the perpetual price is rising above spot, and more traders are bullish as they are willing to pay premiums to hold long positions.
However, it can also signal potential market overheating as extremely high rates can indicate overleveraged longs and possible correction risk.
Bitcoin failed to make progress above $90,000 and had fallen back to $88,200 at the time of writing.
Massive end-of-year options expiry
Market volatility could also be amplified by the massive end-of-year Bitcoin options expiry event on Friday, Dec. 26.
More than $23 billion in notional value Bitcoin options contracts will expire in one of the largest options expiry events of all time. End-of-quarter and end-of-year expiries are much larger than regular weekly or monthly events.
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Calls, or long contracts, are clustered around the $100,000 and $120,000 strike prices while puts, or short contracts, are concentrated around $85,000, according to Deribit.
The put/call ratio is currently 0.37, which means there are a lot more long contracts expiring than shorts. Max pain, or the strike price at which most losses will be made, is currently $96,000, according to Coinglass.
If spot prices do not move higher, the majority of these contracts will be worthless on expiry. A $7,500 gap to max pain suggests bullish bets, or calls at higher strikes, were overly optimistic and will realize losses.
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