Hedge Funds Reenter Crypto Call Options After Major Liquidations
Hedge funds and institutional traders are aggressively buying back into cryptocurrency call options following one of the most significant sell-offs of bullish positions this year. This renewed interest comes after a weekend liquidation event that saw about $1.1 billion wiped out from crypto bets.
On August 4, Bitcoin fell as much as 17% and Ether lost over 20% of its value, marking one of the worst market downturns of 2024. The sell-off, which started during Asian trading hours, resulted in roughly 50% of open interest in crypto derivatives being liquidated, according to Yevgeniy Feldman from SwapGlobal.
Despite this downturn, Hedge Funds traders are re-entering the market with optimism. They are particularly focused on buying call options that allow them to purchase Bitcoin at strike prices of $90,000 and above later this year. This rebound is reflected in increased demand for Bitcoin on platforms like Coinbase Global Inc., where the bid-to-offer ratio indicates strong buying interest at lower levels.
Short-term hedging has surged on offshore exchanges, with a higher put-to-call ratio observed on Deribit. Retail investors, who frequently use these platforms, are buying more puts as a hedge against further price declines. Conversely, U.S. institutional investors, who typically use over-the-counter (OTC) desks, have shown a bullish bias for the latter part of the year.
The most popular options currently are September $90,000 calls, December $100,000 calls, and March $100,000 calls, which together hold nearly $1 billion in notional value. Bitcoin’s price was around $56,850 on Tuesday, showing a 4.5% increase.
The optimism for a bullish end to the year is partly driven by political factors, including the potential re-election of Donald Trump, a known crypto supporter. As Hedge funds traders look to capitalize on a potential market rebound, the landscape remains volatile but promising for those with a long-term bullish outlook.
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