As Bitcoin Hits $100,000, Analysts Warn Of Potential Pullback Amid High Funding Rates

2 weeks ago 15

Bitcoin has recently made headlines by breaking through the $100,000 mark for the first time, a milestone that has prompted increased trading activity and strategic hedging among investors.

According to a Bloomberg report, this surge has led some traders to seek protection against potential price declines, as demand for put options—contracts that allow buyers to sell an asset at a predetermined price—has risen sharply.

Caution Grows With Increased Interest In Put Options

Data from Amberdata reveals that put options with strike prices of $95,000 and $100,000 have garnered substantial open interest, indicating a strong interest in hedging against a downturn. Furthermore, there has been a noticeable uptick in demand for puts in the $70,000 to $75,000 range.

Luke Nolan, a research associate at CoinShares, noted that much of the put open interest is concentrated in late December and January, suggesting traders are preparing for any potential corrections after Bitcoin’s significant price increase.

While the recent trading activity is indicative of the excitement surrounding Bitcoin, the open interest for put options remains relatively low compared to call options, which grant investors the right to buy the asset at specific prices.

This disparity suggests that while traders are cautious, bullish sentiment still prevails in the market. The digital currency has surged approximately 50% since the election, hitting a high of $104,000 before stabilizing around $97,370 as of late Thursday.

The funding rate—a measure of the cost to maintain leveraged positions—has approached all-time highs, indicating that traders are paying significant premiums to amplify their bullish bets.

Brian Strugats, head of trading at FalconX, noted that this funding rate spike mirrors patterns observed in previous bull markets, where increased funding rates often accompany strong price movements.

Tether CEO Highlights Bitcoin’s Role In Financial Freedom

In addition to Bitcoin’s performance, other sectors of the crypto derivatives market are showing bullish indicators. Futures contracts on the CME—the Chicago Mercantile Exchange—have seen significant premiums, and options markets on platforms like Deribit are also reflecting a positive outlook for the cryptocurrency market.

Notably, short-dated call options at strike prices of $100,000 and $110,000 have seen considerable activity, with large trades indicating strong investor interest.

Despite the overall optimism, some market analysts caution that the elevated funding rates could signal an impending pullback, as has been observed in previous bull runs.

Bohan Jiang, head of OTC options trading at Abra, emphasized that while high funding rates can indicate an overheated market, they can persist for longer than anticipated, adding an element of risk.

Paolo Ardoino, CTO of Bitfinex and CEO of Tether (USDT), also highlighted the significance of Bitcoin surpassing the $100,000 milestone. Ardoino described it as a reflection of Bitcoin’s resilience and its growing acceptance as a reliable asset during economic uncertainty.

Ardoino remarked that Bitcoin is not merely a speculative asset but a means of unlocking financial freedom for communities worldwide, providing access to decentralized financial systems across geographical boundaries. Ardoino further stated:

Bitcoin crossing the major $100K mark, isn’t just about ‘numbers going up’. It’s a testament to its resilience and inclusivity. As a safety net in most worst-case scenarios, Bitcoin continues to deliver when traditional systems falter. The recent surge in institutional interest too has buoyed Bitcoin’s price, solidifying its position as a reliable asset even in times of economic uncertainty… With the current optimism around a more favorable US regulatory environment, the crypto industry is set for a pivotal and transformative year in 2025.