Bitcoin’s December price action seems to be in its final stage, and the containment that has been observed within roughly $85,000 to $90,000 has much to do with derivatives design and very little to do with market sentiment.” “We are in a situation where Bitcoin has
In particular, high exposure to options around the spot price necessitated active hedging by market makers, including buys on declines and sells on rallies. The resultant hedging pushed volatility below market expectations, despite overall improvement in the macro environment and performance of risk assets.
This is soon to change with the expiration of options contracts for the year-end. With about $27 billion in open interest that is set to roll off and a persistently positive bias in options positioning, hedging forces that have held prices in check are expected to fade quickly.
Implied volatility is close to month lows, suggesting that the market is possibly factoring in less than it should for possible movements, given the mitigation of fundamental constraints.
“When positioning effects drive price action for an extended period of time, the subsequent resolution of those effects occurs very quickly when those restrictions are lifted.
