The crypto derivatives market is experiencing significant activity, with Glassnode reporting an increase in perpetual open interest ahead of a potential market shift by year-end.
Perpetual open interest (OI) has climbed from 304,000 to 310,000 Bitcoin (BTC) as its price reached $90,000 briefly on Monday, Glassnode announced.
The funding rate has also surged from 0.04% to 0.09%, indicating that derivatives traders are predicting a significant market movement by the end of the year.
“This combination indicates a renewed accumulation of leveraged long positions, as perpetual traders prepare for a possible year-end shift,” Glassnode noted.
Bitcoin perpetuals are futures contracts that do not have an expiration date and can be held indefinitely. They follow Bitcoin’s spot price through a mechanism known as the funding rate, which involves periodic payments between traders holding long and short positions.
Rising funding rates indicate bullish sentiment
An increase in funding rates generally signifies that the perpetual price is climbing above the spot price, reflecting growing bullish sentiment among traders who are willing to pay premiums to maintain long positions.
However, high funding rates may also indicate potential market overheating, as excessively high rates can suggest overleveraged longs and the risk of corrections.
At the time of writing, Bitcoin was unable to maintain its surge above $90,000 and had retreated to $88,200.
Significant end-of-year options expiry ahead
Market volatility is likely to spike due to the large end-of-year Bitcoin options expiry event scheduled for Friday, Dec. 26.
Over $23 billion worth of Bitcoin options contracts are set to expire, marking one of the largest options expiry events in history. End-of-quarter and end-of-year expiries are significantly larger than typical weekly or monthly events.
Related: With all the right conditions for a bull market, why is the market down?
Calls, or long contracts, are concentrated around the $100,000 and $120,000 strike prices, whereas puts, or short contracts, are focused near $85,000, as reported by Deribit.
Currently, the put/call ratio stands at 0.37, indicating that significantly more long contracts will expire than short ones. The max pain point, or the strike price at which the greatest losses will occur, is currently $96,000, according to Coinglass.
If spot prices do not increase, most of these contracts may become worthless upon expiry. A $7,500 gap to max pain indicates that bullish bets, or calls at higher strike prices, were overly optimistic, resulting in losses.
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