Bitcoin hits 16-month high, options positioning tells you how the market will go

Bitcoin (BTC) surged above $35,000 on Monday, reaching its highest price since May 2022, as cryptocurrency markets continued their bullish October run, with optimism growing over the approval of a Bitcoin ETF in the United States.

Bitcoin recently rose more than 11% in the past 24 hours to $33,316, retreating from the peak of the surge but still up sharply.

Optimism that a Bitcoin ETF will be approved has been high in recent days, with a recent court ruling in Grayscale’s favor raising the possibility that the largest Bitcoin Trust, its GBTC product, will be converted into an ETF. BlackRock’s listing application took a half step forward, with its proposed product appearing on the Depository Trust & Clearing Corporation website with an assigned unique ID number — which doesn’t mean its ETF has been approved, but some interpreted the step as a sign that the company is confident of a win.

Chainlink’s (LINK), Polkadot’s native token (DOT) and Polygon’s (MATIC) were among the best performing large-cap digital assets, rising 6%-10%. Ethereum (ETH) and Ripple’s related token (XRP) rose 2%-3%.

U.S. stocks recovered from Monday's early losses to close mixed, with the 10-year Treasury yield falling sharply after hitting 5% for the first time in 16 years during the session.

What's next for BTC price?

Todd Groth, director of research at CoinDesk Indices, noted that the CoinDesk Bitcoin Trend Indicator (BTI), which measures the directional momentum and strength of Bitcoin's price movement, turned "significantly up" as BTC gained a foothold above $30,000.

“BTC, ETH, and the CoinDesk Market Index (CMI) are all up week-over-week while decoupling from the tech-heavy QQQ, with long-term yields rising,” Gross tweeted.

Alex Thorn, head of research at digital asset investment firm Galaxy, said the upward trend could accelerate further as options traders need to buy Bitcoin in the spot market to hedge positions at price levels above $30,000.

Bitcoin spot Gamma value on October 22, 2023

(AmberData, Galaxy)

“At the peak around $32,500, options traders needed to buy nearly $20 million in BTC for every 1% move higher to remain delta neutral,” Thorn said in a market note. “This positioning means that as spot prices move higher, market makers need to buy back more and more delta, which should increase the explosiveness of any moves in the near term.”

However, ByteTree analysts pointed out in a report on Monday that the activity on the Bitcoin blockchain presents a more pessimistic outlook. ByteTree's Shehriyar Ali and Seran Dalvi pointed out that the number of transactions has dropped by 50% in a month, and the economic throughput of the Bitcoin network is also on a downward trend.

“This means that prices are being driven entirely by expectations of positive news, which is not necessarily healthy in the short term,” they said.

Galaxy’s Thorn added that the $26,750 to $28,250 area will serve as a support area for BTC price.

“Traders will also need to buy Bitcoin to remain delta neutral if spot prices fall into this range, which should provide additional spot price support if we fall into this range,” he explained.