Bitcoin, the world’s leading cryptocurrency, is showing signs of potential upward momentum as the derivatives market, specifically options contracts, paints a picture of rising prices in the coming months. According to industry insiders, the market is entering a “reflexivity season” where traders’ actions and expectations are driving a feedback loop of higher prices.

Nick Forster, the founder of decentralized finance (DeFi) derivatives protocol Derive, explained that Bitcoin’s options market is seeing traders increasingly focus on significant upside, with prices between $80,000 and $90,000 in their sights by the end of November.

As we approach key political and economic events, such as the upcoming U.S. presidential election, volatility is expected to intensify, making Bitcoin an attractive bet for those looking to profit from price swings.

Reflexivity: The Self-Reinforcing Price Feedback Loop

Forster referred to the concept of reflexivity to explain the current dynamics in the Bitcoin options market. Reflexivity refers to the idea that market participants’ behavior and expectations directly impact asset prices, which, in turn, influences future behavior, creating a feedback loop.

“Traders are expecting continued momentum as prices rise, which drives a self-reinforcing cycle of higher prices,” Forster said in an interview with Decrypt.

One of the key metrics pointing to this reflexivity is the 30-day call/put skew for Bitcoin options contracts, which measures the imbalance between bullish (call) and bearish (put) positions. According to Forster, this skew continues to track higher, signaling that traders are betting heavily on upward price volatility and significant market swings.

These traders are placing their bets on Bitcoin hitting $80,000 to $90,000 by the end of November, a major leap from its current price range of around $63,000. The feedback loop driven by traders’ optimism could push prices higher as more participants pile in, amplifying the momentum.

Bitcoin ETF and Options Approval: What It Means for the Market

The derivatives market is seeing more attention than ever, partly due to increasing involvement from traditional financial institutions. A significant development was the U.S. Securities and Exchange Commission (SEC) greenlighting a rule change for Nasdaq’s International Securities Exchange to list and trade options on the iShares Bitcoin Trust (IBIT), BlackRock’s Bitcoin exchange-traded fund (ETF).

BlackRock’s ETF has become widely popular when it dicover, and now, the availability of options linked to it will provide investors with more tools to hedge risk or speculate on Bitcoin’s price movements. This is expected to bring in a broader range of institutional players who previously relied primarily on the spot market for exposure to Bitcoin.

Forster noted that while the approval of Bitcoin ETF options could eventually lead to “long-term skew compression,” or a reduction in volatility as traditional financial traders engage in strategies like selling covered calls, the immediate effect has been an increase in bullish sentiment. The market hasn’t yet felt the full impact of these new options products, but their introduction has certainly broadened the horizon for more complex trading strategies.

Volatility Is Set to Rise as Bitcoin Stays in Focus

Bitcoin has always been known for its wild price swings, and the introduction of more options and derivatives products is likely to amplify these moves in the short term. Recently, Bitcoin’s price has fluctuated between $53,000 and $64,000, and as of today, it sits at $63,000 according to Coin Gecko data.

Despite a slight 1.5% drop on the day, the sentiment in the options market suggests that many traders believe Bitcoin could see a breakout in the coming months. This is partly driven by the anticipation of major economic events that could influence global markets, including inflation data, Federal Reserve policies, and the U.S. election.

Options trading, which allows traders to hedge risks or speculate on price movements, gives them the right—but not the obligation—to buy or sell Bitcoin at a predetermined price before a specified date. This flexibility means traders can take on limited downside risk while maintaining the potential for significant gains, making it an appealing tool for those speculating on Bitcoin’s future.

What Traders Should Watch For

As Bitcoin’s options market continues to heat up, it’s essential for traders and investors to keep a close eye on the following key factors:

• Volatility: Expect volatility to increase as we approach major geopolitical and economic events. Traders can anticipate wild swings as market participants reposition themselves in response to news and market developments.
• Skew Metrics: The call/put skew for Bitcoin options is a crucial indicator of market sentiment. A rising skew often signals that more traders are betting on the price going up, creating the reflexivity that Forster mentioned.
• Institutional Involvement: As more traditional players enter the derivatives market through products like BlackRock’s Bitcoin ETF options, expect a shift in how volatility is managed. Institutional traders tend to use more conservative strategies like selling covered calls, which could eventually lead to less dramatic price swings.
• Bitcoin ETF Impact: The approval of Bitcoin ETF options is a significant step in the maturation of the crypto market, making it more accessible to a broader range of investors. The long-term effect of this move will likely stabilize the market, but in the short term, expect price fluctuations as traders adjust to the new dynamics.

Conclusion: The Road Ahead for Bitcoin Prices

The current sentiment in the Bitcoin options market suggests a growing expectation of higher prices in the near future. With traders placing bets on prices reaching $80,000 to $90,000 by November, the market could be entering a self-reinforcing cycle that pushes Bitcoin to new heights.

However, as with any speculative asset, risks remain. The volatility of Bitcoin, coupled with the uncertainty surrounding global economic events, could lead to sharp price fluctuations in either direction. Traders should remain cautious and keep an eye on market indicators, such as skew metrics and institutional activity, to navigate the stormy waters ahead.