$23 billion options trigger next week's volatility. Can Bitcoin hold steady at 87,000 after the Bank of Japan's rate hike?

On Friday, the Bank of Japan as scheduled raised the policy interest rate by 25 basis points to 0.75%, hitting a 30-year high. This move was expected to trigger a surge in safe-haven funds, but it did not lead to the rapid appreciation of the yen as the market anticipated. Instead, the yen remained stable, weakening slightly against the US dollar to 156.03, while Bitcoin prices managed to withstand two consecutive days of decline, currently trading around $87,000, with a high of $89,000 at one point.

As the US dollar’s performance against the Malaysian ringgit and other non-US currencies diverges, the global liquidity landscape has become more complex. More notably, about $23 billion worth of Bitcoin options contracts are set to expire next Friday, accounting for over half of the open interest on the Deribit platform, which is expected to further amplify existing market volatility.

Rate Hike Did Not Trigger Arbitrage Liquidation, Market Expectations Have Been Fully Priced In

The Bank of Japan’s statement pointed out that, despite inflation remaining above the 2% target, the real interest rate (adjusted for inflation) remains in negative territory. This indicates that even after the rate hike, Japan’s monetary policy remains accommodative.

The market’s reaction aligns with expectations mainly because this rate hike has already been widely priced in: speculative funds have built long positions in the yen over the past few weeks, suppressing large buy orders following the policy announcement. The large-scale unwinding of yen arbitrage trades that once worried risk asset bulls did not occur, as Japanese interest rates remain significantly lower than US rates post-hike, insufficient to eliminate cross-border arbitrage attractiveness.

Decades of ultra-low interest rates have established the yen as a global funding currency for arbitrage. Investors borrow yen at low costs to invest in high-yield assets (US stocks, US bonds, emerging market bonds), boosting global risk appetite. A short-term rate increase to 0.75% is still insufficient to change this dynamic.

Options Market Reveals Hidden Risks: $85,000 Becomes a “Magnetic Pull”

Technical indicators show clear signs of a bearish dominance. The current 30-day implied volatility has risen back to around 45%, and the skew indicator (measuring the cost of upside potential relative to downside protection) remains stable at about -5%, reflecting traders are pricing in ongoing downside risks throughout Q1 and Q2.

The options positions expiring on December 26 show market divergence: call options are mainly concentrated around $100,000 and $120,000 strike prices, suggesting a slight optimism for a technical rebound toward the end of the year; however, short-term puts dominate, with a large volume of put options centered at the $85,000 level, with open interest of about $1.4 billion, potentially creating a strong “attraction” before expiration.

Since reaching a historical high of $126,080 in early October, Bitcoin has declined over 30%. During the US trading session on Wednesday, a single-hour price fluctuation exceeded $130 billion, triggering a chain liquidation storm, causing the total crypto market cap to fluctuate violently around the $3 trillion mark. Bitcoin once rose 4% to $89,430 but then fully retraced those gains.

Weak Position Structure, Multiple Catalysts Indicate Downward Pressure

Post-expiration, market re-positioning is expected to revolve around two major catalysts. First, the MSCI index rebalancing on January 15 may remove “digital asset treasury companies” holding over 50% of their assets in crypto. Second, a new wave of covered call inflows is anticipated. These factors combined are expected to further amplify downward volatility while suppressing upward potential.

Bitcoin has declined 23% year-to-date, heading toward its worst quarter since Q2 2022 (during the Terra and Three Arrows Capital collapses). The continued selling pressure from long-term inactive wallets is suppressing spot prices, preventing Bitcoin from reclaiming key levels, and causing the market to remain in a fragile sideways stalemate.

Current sentiment remains easily affected by shocks. Volatility remains high, and the position structure is heavily defensive. However, as the market prepares for a turbulent start to the new year, upside tail risks have not been fully dismissed. The volatility compression around the $23 billion options expiry window will be a key moment next week to test the market’s bottom support strength.