Latest / The Cryptocurrency Economy with Fexingo: Bitcoin, Ethereum, and Digital Money Markets / Why On-Chain Options Data Is Predicting the Next Bitcoin Move
Transcript
- Lucas: Bitcoin is sitting just above $65,000 as of tonight, July 20th, and volatility has been compressing for weeks. The vix style crypto volatility index — the DVOL — is near its three-year low. But underneath that calm surface, the options market is telling a different story. Luna: Meaning the quiet price action is masking some real positioning? I've noticed open interest on Deribit has been climbing even as spot volume drops. Lucas: Exactly. Open interest in Bitcoin options on Deribit hit a new all-time high last week — over $24 billion in notional value. And the interesting part is where that open interest is concentrated. It's not at the money straddles or hedges. It's skewed heavily toward out-of-the-money call options for September and December expiry. Luna: So institutions are betting on a breakout, not a crash. That's the opposite of what we saw back in May when put-call ratios were elevated. Lucas: Right. In May, spot was around $59,000 and the put-call ratio spiked above 0.7. Now it's down around 0.45. That's a meaningful shift. And it's not just on centralized exchanges. On-chain options protocols like Lyra on Optimism are seeing similar flows — their open interest in BTC options has doubled since June. Luna: Is this retail or institutional? Lyra tends to be more retail and smaller funds, while Deribit is the institutional venue. Lucas: It's both, which makes it more interesting. Retail on Lyra is buying upside call spreads — cheap lottery tickets on a move above $80,000. Institutions on Deribit are building larger, more structured positions: things like risk reversals where they sell puts to finance buying calls. That's a classic sign of a bullish skew in professional portfolios. Luna: And this is happening while the macro backdrop is basically flat. Fed funds at 3.63 percent, no rate move expected until September at the earliest. So the catalyst isn't monetary policy — at least not yet. Lucas: Right. The macro is a non-event this week. But what's interesting is that prediction markets — like Polymarket — are now pricing in a higher probability of a Bitcoin ETF options approval before year-end. That would open up a whole new layer of institutional participation. And some traders are front-running that narrative. Luna: So you're saying the options market itself is becoming a leading indicator for spot price, rather than the other way around. Lucas: That's exactly what's happening. Historically, spot volume and futures basis were the main signals. But options flow — especially on-chain where you can see wallet-level behavior — is proving to be more predictive. A paper from the CME last month showed that unusual options activity in BTC predicted 60 percent of major price moves over a five-day horizon, compared to 40 percent for futures. Luna: That's a huge edge. If you can monitor on-chain options data, you're essentially seeing the smartest money's bets before they hit the spot market. Lucas: And it's not just Bitcoin. Ethereum options open interest is up too, though the story there is different. ETH is at $1,893, basically flat on the week. But the options skew is actually bearish — more puts relative to calls. That suggests traders are using ETH options to hedge against downside in altcoins, which have been underperforming. Luna: Makes sense. Solana is up 2.9 percent in the last five days to $77.46, but Cardano jumped 4.7 percent to $0.1682. Those moves are still small in absolute terms. The real action is in the options market right now. Lucas: One more data point: Coinbase trading results may fall short of expectations according to prediction markets. That's interesting because Coinbase is the main on-ramp for retail options through its recent partnership with a clearing firm. If volume disappoints, it could slow retail adoption. But the on-chain options data suggests that professional traders are already well ahead of that. Luna: So if we're looking for a catalyst, it might not come from Coinbase earnings or Fed policy — it might come from the options market itself, as more players pile into these bullish structures. Lucas: That's the thesis. And if the pattern holds from previous cycles, a sustained build-up in out-of-the-money call open interest tends to lead a volatility expansion within four to six weeks. We're already seeing implied volatility starting to tick up — the 30-day implied vol for BTC options rose from 38 percent to 43 percent in the last week. Luna: So the quiet period might be ending soon. And if you're paying attention to options flow, you might see it coming before the rest of the market. Lucas: And that's really the broader point here. The crypto options market is maturing. It's no longer just a hedge for miners or a casino for retail. It's becoming a legitimate price discovery mechanism — and one that's more transparent than traditional finance because the data lives on-chain. Luna: Yeah, I think that's worth pausing on. If you've been following along and this conversation made something click — maybe you're starting to see how on-chain data can actually inform your own decisions — that's exactly what we're trying to do here. Lucas: And the reason we can keep doing it without ads or sponsors is listeners who find value in it and choose to support. If today's episode was useful, you can buy us a coffee — literally — at buy me a coffee dot com slash fexingo. No pressure, just a way to keep this independent. Luna: Appreciate that. So back to the options landscape — one thing I want to dig into is the role of decentralized options protocols. Deribit is still dominant, but Lyra and others are growing fast because they offer non-custodial trading. Does that change the risk profile for traders? Lucas: It does. On Deribit, you're trusting a centralized exchange with your collateral. On Lyra, options are settled on-chain via smart contracts, which removes counterparty risk but introduces smart contract risk. The trade-off is real. But for sophisticated traders, the ability to audit the entire options chain on-chain is a game-changer. Luna: Especially if you're running quant strategies. You can backtest against complete order book history, not just sampled data. Lucas: Exactly. Some of the most interesting flows we're seeing on Lyra are from automated market makers providing liquidity to options pools. They're essentially earning yield by selling options to buyers. That's a new source of supply that didn't exist two years ago. Luna: And that supply is keeping option premiums relatively low compared to historical norms. Which makes it cheaper for institutions to build those bullish positions we talked about. Lucas: Right. The cost of buying a September $80,000 call on Deribit is about 2.1 percent of notional today. That's cheap by historical standards. If you think Bitcoin has a 30 percent chance of hitting $80,000 by September, that's positive expected value. And the market is pricing it that way. Luna: So the options market is not just predicting — it's also enabling the move. Cheap premiums encourage more buying, which pushes up implied vol, which attracts more liquidity. It's a virtuous cycle. Lucas: And we're seeing that cycle start to turn. The question is whether spot will follow. Historically, options lead spot by a few weeks. If that holds, we could see Bitcoin pushing above $70,000 by mid-August. Luna: But what if the catalyst doesn't come? What if the Fed stays hawkish or Coinbase earnings disappoint and retail pulls back? Lucas: Then those out-of-the-money calls expire worthless, and we get a volatility crush. But the positioning tells us that the market is leaning long. And when the options market leans one way, it's usually right more often than not — at least over a two-to-three month horizon. Luna: So for listeners, the takeaway is: watch options open interest, watch the put-call ratio, and pay attention to where the volume is concentrated. That's where the signal is right now. Lucas: Exactly. Spot price tells you where we've been. Options tell you where smart money thinks we're going. And in this market, that's the edge.