Bitcoin's options market is in the midst of the strongest upside sentiment ever as the cryptocurrency climbs to a three-year high.
The six-month put-call delay, or the spread between the prices claimed by put options and the call options that expire in six months, fell to a lifetime low of -21.6% early Thursday, according to the data source Skew.
A call option gives the holder the right, but not the obligation, to buy the underlying asset on or before a specified date at a specified price. A put option gives the right to sell.
Skew's data shows that net demand for call options or bullish bets outstrips net demand for puts or bearish bets by most of those registered. This is a sign that strong bullish expectations have developed in the market.
"The options market is forecasting some upside," said Vishal Shah, options trader and founder of the Alpha5 futures exchange.
Bitcoin topped $ 16,000 early Thursday to hit a high of $ 16,157, a level last seen three years ago. Analysts expect the cryptocurrency to consolidate on top of recent earnings for a few weeks before heading to $ 20,000 by the end of December.
The six-month put-call offset has been largely below zero for the past 22 months, indicating investor confidence in the cryptocurrency's long-term prospects. However, the value has never been this low.
“The bull trend may be at an all-time high, but the Bitcoin options market is almost permanently bullish. With Bitcoin now flirting with $ 16,000, it is possible that this surge in bullish sentiment will come from new entrants, ”Sui Chung, CEO of crypto index provider CF Benchmarks, told CoinDesk.
The bullish or bearish record sentiment often marks important market peaks or troughs. "While this isn't always a problem, extremes tend to revert to a mean," Alpha5's Shah told CoinDesk.
Although sentiment in the options market seems extreme, the cryptocurrency is still $ 4,000 below the record high of $ 20,000 in December 2017. Also, the average reversal of the bullish bias in options is unlikely to affect the spot market because the options market is still is relatively small.
Chung said the bull trend is likely to correct itself if call premiums get too expensive, which may not be too far off given the spreads on puts. This scenario could play out once the cryptocurrency hits a new record high.
Right now, investors don't even seem to consider the option of a temporary withdrawal. This is evident from the negative one-month offset. The cryptocurrency's strong breakthrough above its June 2019 high of $ 13,800 has cleared the way for a possible rally towards the previous record.