While some expect bitcoin’s (BTC) upcoming reward halving to light a fire under the cryptocurrency, the options market seems worried about the event turning out to be a wet blanket.
The biggest cryptocurrency by market value is set to undergo its third mining reward halving next month. The code, aimed at controlling inflation, would reduce the amount of bitcoin created every 10 minutes or so from 12.5 BTC to 6.25.
Assuming demand remains constant, the cut in regular issuance should drive up the price, bulls argue.
“The 50 percent emission cut could serve as a catalyst for the digital asset’s continued appreciation,” said Matthew Dibb, co-founder and COO of crypto tracker and index fund provider Stack.
Options traders, however, are buying put options, or bearish bets, and pushing bitcoin’s put-call open interest ratio higher heading into the halving.
Read more: Bitcoin Halving, Explained
The ratio rose to 0.61 on Monday, the highest level since Feb. 27, after bottoming out at 0.42 on March 24, according to data provided by the crypto derivatives research firm Skew.
“The put-call open interest ratio measures the number of put options open relative to calls,” said Skew CEO Emmanuel Goh. A put option gives the holder the right but not the obligation to sell the underlying asset at a predetermined price on or before a specific date. A call option gives the right to buy.
Open interest is the total number of options contracts active at a given point in time and is different from trading volume, which refers to the number of contracts traded in a given period.
“The rise in the put-call open interest ratio from 0.42 to 0.61 seen over the last three weeks indicates increased focus on hedging the downside risk in bitcoin’s price,” Goh said.
One possible motivation for this hedging is the fear bitcoin may suffer a post-halving price drop, similar to the one seen in litecoin (LTC) in 2019 and more recently in…