Crypto markets have been through a turbulent journey over the days. BTC initially surged past $100,000, buoyed by two key events: Microstrategy's addition to the Nasdaq 100 and Trump's response to a question about a potential strategic reserve, which some found vague but others interpreted as a potential endorsement of the concept.
After briefly touching the $108k mark and renewing its all-time highs earlier in the week, however, the momentum quickly shifted. The Federal Reserve's indication of slower rate cuts in 2025 and 2026 triggered a broad correction in risk assets, leading to crypto liquidations that pushed Bitcoin back below six figures even after today’s partial recovery. The debt ceiling negotiation chatter also adds, at least in the short term, some fuel to the fire.
Other assets largely underperformed during this period. The ETH/BTC price ratio slipped below 0.040, though it remained slightly above its recent low of 0.032 from November 21. SOL showed particular weakness, trailing behind both Bitcoin and Ethereum's performance. The higher beta-names, such popular memecoins like SHIB and DOGE, fell by over 20%.
As we noted almost a month ago, liquidity trends indicate that the chop around $100k could persist. While sentiment has turned more cautious, I still think a choppy price action near-term preparing the ground for a bullish trajectory into Q1 2025 remains the most likely scenario.
There are signals already that seller pressure might not persist. Following the correction over the past 48 hours, the order book's skew has shifted dramatically in favor of buyers, reaching its most buy-heavy level since the election.
The low-volume environment the market is operating under, however, is likely to bring uncertainty until the end of the year. Until the sharp correction of the past 48 hours, both spot and futures volumes on the majors BTC, ETH, and SOL were about 40% lower compared to the month’s average. Last weekend’s volume would not have scored in the top 35 in BTC’s history.
This low-liquidity environment could bring more volatility as we enter into the final days of the year, especially because on December 27 crypto is likely going to see the biggest options expiry event of its history.
The chart below breaks down BTC Deribit options open interest by time to expiration. While the total figure of over $30 billion reflects the remarkable growth of the options market since the election, the large green area on the right underscores the large concentration in 2024 year-end contracts.
The December 27 expiry commands $15 billion in open interest and roughly $1 billion in daily volume. For context, these figures account for 43.0% and 35.8% of total market activity across all expiries and surpass the scale of the entire options market from just a few quarters ago.
Calls dominate year-end contracts, representing two-thirds of the total open interest of these 2024 year-end options. Looking at the strike-by-strike distribution, the six largest positions are in a mix of in-the-money and out-of-the-money calls: $90k, $100k, $110k, $120k, and $80k. Put activity clusters mainly around $80k and $90k strikes.
That said, demand for downside protection has been rising for a few weeks now, perhaps partially fueled by players looking to protect their 2024 calendar year performance metrics. The put/call ratio on Dec 27 options open interest doubled from 0.35 in October to over 0.70 currently.
This is not a trend only in the year-end contracts. The chart below shows the put/call ratio (on open interest) for BTC Deribit options across all expiries. The current level of 0.58 is approaching the highest level mark of the past two years.
The sharp dip in the skew curve for December expiries also indicates heightened demand for puts relative to calls in the near-term, reflecting short-term downside protection buying. This contrasts with the steadily positive skew levels for 2025 expiries, suggesting the market's defensive positioning is particularly focused on year-end and early 2024 rather than longer-dated periods.
While these dynamics remain fluid, this historic options expiry event signals something bigger: the deeper integration of options into crypto's price formation process.
Options market signals are interesting not only because they provide a window into the “smart money” segment of the market but also because they provide more granularity into specific views that you cannot spot and express in other markets.
It is likely that these signals will become increasingly important to contextually market price action from here on.
