Bitcoin’s price has been increasing since early October, rising to $42,000 after spending much of the summer stuck around $25,000. There are several reasons for the rally, including optimism of an impending spot bitcoin ETF approval, the bitcoin halving and macroeconomic developments. The positive price action has pointed to an increased preference for options for hedging and leveraging exposure.

In a first for the industry, all January and April Bitcoin (BTC) and Micro Bitcoin (MBT) Weekly options are available to trade, allowing flexibility and precision to manage major upcoming events in the crypto market. Monday to Friday Weekly Bitcoin and Micro Bitcoin options expiring from January 2 to January 31, 2024, and from April 1 to April 30, 2024, are now available to trade providing the ability to pinpoint an expiry to a specific date.

There are several reasons for the rally, some point to signs that a slate of exchange-traded funds that hold actual bitcoin — known as spot bitcoin ETFs — may soon be approved by the SEC as early as January 10, 2024. If granted, such approval will provide investors with additional products to access bitcoin exposure and may attract participants who may have been sitting on the side-lines.

The approval of the futures-based ProShares Bitcoin Strategy ETF (BITO) made history in October 2021 as one of the strongest ETF launches, amassing more than $1 billion in assets in just two days, and continuing to attract interest.

Another popular theory is tied to bitcoin's upcoming "halving." This pre-programmed adjustment to the blockchain cuts in half the reward miners receive for processing transactions as well as the new bitcoin supply from the current 6.25 to 3.125 bitcoin per block. This event occurs after 210,000 blocks are mined or about every four years until the maximum supply (21MM) is reached. The next halving, bitcoin’s fourth, is expected to happen by mid-April 2024.

In the past, this event and the associated supply reduction has coincided with a strong run-up in bitcoin’s price and could potentially lead to pre- and post-halving volatility. The geopolitical and macro backdrop for the upcoming halving is very different from previous ones and the availability of regulated, robust and liquid Bitcoin futures and options from CME Group means firms have trusted and tested products to hedge their bitcoin price risk or gain exposure.

In Q1, after the banking crisis, there was a strong crypto rally and volumes increased with institutions putting capital to work. Over the majority of Q2 and Q3 volumes slowly dipped lower, especially into the summer months were there was very little realised volatility. Firmly into Q4 we saw bitcoin’s price starting to rally and volatility spike, albeit initially, on the back of fake news. Notably, cryptocurrencies continued to demonstrate a short-term decoupling from equities, as the S&P 500 Index declined by -2.8%. Options volumes exploded – so far in Q4, CME Bitcoin (BTC+MBT) options average daily volume increased +35% over Q3. With some of the spot ETF enthusiasm being increasingly priced into the market, this has been a catalyst for repositioning across the market as investors incorporate the effects of this catalyst into market volatility assumptions.   

With the potential of increased volatility in the market, the enhanced listing schedule for Bitcoin options and Micro Bitcoin options will allow for enhanced risk management such that participants will be able to pinpoint their options expiry to a specific date of their choosing.

On November 24, CME Bitcoin futures hit an all-time high with open interest of 23,341 contracts – the equivalent of $4.5 billion. On the options front, combined BTC and MBT options average daily volume (ADV) increased 68% from September to October and BTC and MBT options average open (AOI) interest for November was more than 17,500 contracts. 

Looking at the Micro Bitcoin options activity, two-thirds of volume traded occurs in the Monday-Friday weeklies, with outsized activity on Mondays. The remaining one-third is in the monthly contract. This compares to less than five percent of the standard sized Bitcoin option volume traded across the weeklies. Volume in the weeklies may signal different client plays, with the active trader seemingly more comfortable in the shorter duration offering and using weekly options to fine-tune or protect portfolios for weekend movements and specific news catalysts that may occur during the week.