Bitcoin rides risk roller coaster as speculative bets wind down

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Key takeaways

Bitcoin price movements have been largely driven by leverage wipeouts in perpetual futures.
Derivatives market open interest has fallen to its lowest level since March.
Options data shows short-term bullish demand alongside protective puts toward year-end.

Market response to interest rate expectations

Bitcoin enjoyed a brief respite along with other risk assets such as stocks amid the expectation that another rate hike is unlikely next month.

Wall Street traders drove stocks higher as short-dated Treasury yields fell, with slower-than-anticipated inflation data reinforcing bets that the Federal Reserve will refrain from raising interest rates in October. Bitcoin rose as much as 2.4 per cent to US$85,594, before erasing the gains to trade little changed Wednesday.

The volatility comes at the close of the best quarter for the digital currency since President Donald Trump was re-elected in late 2024. Yet, whether the original cryptocurrency will break another yearly high or further retreat remains to be unclear as traders stay on the sideline in the derivatives markets after waves of large liquidations in recent months. Bitcoin is up 43 per cent in the third quarter.

Resetting of the derivatives market

“The bitcoin derivatives market has reset in a rare, orderly fashion,” said Vetle Lunde, head of research at K33. “Past orderly unwinds offer few directional signals, but they have tended to precede low forward volatility as traders sit on the fence.”

Recent drastic moves in bitcoin prices have been largely driven by rapid leverage wipeouts in the perpetual futures market, which makes up the majority of crypto trading. A record wave of liquidations in bearish bets on bitcoin in late August prompted a surprise rally as short sellers rushed to buy the digital asset and cover their positions.

Much of the speculative leverage accumulated during the rapid breakout toward US$87,000 has been successfully flushed out, resetting perpetual contract positioning to a neutral baseline as prices consolidate, according to a report by Tagus Capital on Wednesday.

On the back of another wave of flush-outs in leveraged bets through perps earlier this month, bitcoin open interest, the number of outstanding contracts, has fallen to its lowest level since March, dropping nearly 20 per cent below August figures even as the token trades around 35 per cent higher than its August low of US$62,000, the report said.

Outlook from options trading

The bitcoin options point to a bullish outlook in the short term while building more protections around US$70,000 toward the end of the year, according to data from crypto exchange Deribit.

Call options expiring on Oct. 30 around the strike prices of US$95,000 and US$90,000 have seen the most demand in open interest by a long shot compared with other contracts that have the same expiration. Puts with strike prices of US$75,000 and US$60,000 are among the most bid contracts in late November and December, respectively.

“October has a strong historical track record for bitcoin, but seasonality alone is not an investment thesis,” said Lacie Zhang, research lead at Bitget Wallet.

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