Bitcoin Surges 4.6% to $101,000, Triggers $205M in Liquidations

Bitcoin (BTC) surged above $101,000 on May 8, marking its highest level in over three months. This 4.6% daily price gain triggered $205 million in liquidations of bearish futures positions and significantly reduced the value of nearly every put (sell) option. Traders are now speculating whether Bitcoin is on the verge of surpassing its all-time high of $109,354 in the near term.

The aggregate Bitcoin put (sell) option open interest for the next three months stands at $8.3 billion. However, 97% of these options have been placed below $101,000 and are likely to expire worthless. This does not necessarily mean that all put options traders were betting on Bitcoin’s downside, as some may have sold these instruments and profited from the price gains.

Among the largest option strategies traded at Deribit is the “bull put spread,” which involves selling a put option while simultaneously buying another put at a lower strike price. This strategy caps both maximum profit and downside risk. For example, a trader aiming to profit from higher prices might sell the $100,000 put and buy the $95,000 put. Cryptocurrency traders are known for their optimism, and this is reflected in the leading strategies on Deribit’s options markets, such as the “bull call spread” and the “bull diagonal spread.” In both cases, traders anticipate Bitcoin prices at expiry to be equal to or higher than the options traded.

If Bitcoin sustains the $100,000 level, most bullish strategies will yield positive results in the May and June options expiries, giving traders additional incentives to support upward momentum. However, there is the possibility that sellers (shorts) using futures markets will exert their influence to prevent a new Bitcoin all-time high. The aggregate open interest on Bitcoin futures currently stands at $69 billion, indicating substantial demand for short (sell) positions. At the same time, higher prices might force bears to close their positions. However, this “short covering” effect is significantly muted in fully hedged positions, meaning those traders are not particularly sensitive to Bitcoin price movements.

For instance, one could buy spot Bitcoin positions using margin or spot exchange-traded funds (ETFs) while simultaneously selling the equivalent in BTC futures. Known as the “carry trade,” this strategy is delta neutral, so the profit comes regardless of price swings, as the monthly Bitcoin futures trade at a premium to compensate for the longer settlement period. The Bitcoin futures premium has been below 8% for the past three months, so the incentives for the “carry trade” have been limited. Hence, it is likely that some form of “short covering” will occur if Bitcoin surges above $105,000, which greatly improves the odds of a new all-time high over the next couple of months.