Bitcoin surged past $125,000 for the first time over the weekend, prompting options traders to increase bets that the cryptocurrency will climb to $140,000 by year's end. The rally, which has pushed Bitcoin up more than 100% in the past year, comes as a U.S. government shutdown fuels demand for assets perceived as safe havens.

What to Know:

• Short-term Bitcoin options contracts show concentrated open interest at the $140,000 strike price, indicating traders expect further gains before year's end.
• The weekend rally caught many traders off guard, with significant short positions being liquidated as the cryptocurrency broke through the $125,000 threshold.
• U.S. Bitcoin exchange-traded funds absorbed $3.2 billion last week, the second-highest weekly inflow since their 2024 launch, while BlackRock's fund reached record open interest of $49.8 billion.

Weekend Surge Shifts Options Market

Bitcoin set a record high Monday, climbing 2.8% to $126,251 after breaking the $125,000 barrier early Saturday in New York. The timing of the Saturday breakthrough suggests that reduced weekend liquidity allowed bullish traders to push through resistance levels more easily.

Data from Deribit by Coinbase shows options contracts settling toward the end of December have accumulated substantial open interest around the $140,000 strike price for call options.

Traders have also moderately increased their purchases of put options to protect against potential declines following the rally.

Greg Magadini, director of derivatives at Amberdata, said the market appears far from exhausted. "We currently see the largest notional open interest on record for Bitcoin futures and perpetual contracts even after a bunch of 'buy-to-close' liquidations," he said. "The market rally has caught people by surprise, we aren't at the top yet, especially as many traders shorted this market."

Jean-David Péquignot, chief commercial officer for Deribit by Coinbase, warned that volatility could emerge quickly.

"From here, watch for volatility spikes and any shift in put volume as a red flag for near-term corrections," he said. "Bulls have their eyes on $130K+, and bears might find opportunities in overbought squeezes."

Open interest across cryptocurrency exchanges for derivatives contracts reached $75 billion. Futures trading on offshore exchange Binance and U.S.-based CME recorded some of the largest volumes, according to Amberdata.

Government Shutdown Drives Safe Haven Demand

Bitcoin's advance coincided with the U.S. government shutdown that began Oct. 1, which prevented the release of key economic data including nonfarm payrolls. The closure has redirected investor attention toward assets traditionally viewed as stores of value during periods of uncertainty.

Gold surged to a record above $3,900 per ounce Monday, extending a rally that has lasted several months. The parallel movements in Bitcoin and gold suggest investors are treating both as hedges against potential economic disruption.

Spot market demand has provided the primary catalyst for recent price gains. Twelve U.S. Bitcoin exchange-traded funds collected $3.2 billion in net inflows last week, marking the second-largest weekly haul since the products launched in January 2024. BlackRock's iShares Bitcoin Trust ETF saw its notional open interest climb to a record $49.8 billion Friday, according to Bloomberg data.

Unlike previous rallies driven primarily by derivatives trading, liquidations of leveraged positions have remained relatively modest. Traders liquidated roughly $283 million in cryptocurrency positions over the past 24 hours. That figure pales compared to late September, when nearly $2 billion in positions were wiped out during a Bitcoin price decline that ranked among the year's largest single-day liquidation events, Coinglass data shows.

Bitcoin perpetual futures and term contracts, which allow traders to add leverage to their positions, have seen substantial activity as the rally progressed. A wave of short-sellers closed their positions as the token began its upward movement.

Adam McCarthy, a research analyst at Kaiko, said sustained momentum could carry through December. "If all goes well around macro updates and data releases we could see prolonged run into the end of the year," he said.

Historical data supports the possibility of continued October gains. Bitcoin has delivered average returns of approximately 22.5% during October over the past decade, leading cryptocurrency traders to dub the month "Uptober." Other major digital assets also posted gains Monday. Ether, the second-largest cryptocurrency, rose about 5% to $4,700, while XRP traded slightly higher at just above $3.

Understanding Key Market Terms

Open interest refers to the total number of outstanding derivative contracts that have not been settled. When open interest increases alongside rising prices, it typically signals that new money is flowing into the market rather than existing positions simply changing hands. Call options give buyers the right to purchase an asset at a specified price, while put options provide the right to sell.

Liquidations occur when exchanges automatically close a trader's leveraged position because losses have depleted the account's margin requirements. Large liquidation events can accelerate price movements as forced selling or buying adds to market pressure.

Perpetual futures contracts differ from traditional futures by having no expiration date. These instruments use a funding rate mechanism to keep their price anchored to the spot market, allowing traders to maintain leveraged positions indefinitely without rolling contracts forward.

Closing Thoughts

The confluence of spot demand through ETFs, derivatives market positioning, and macroeconomic uncertainty has created conditions that could sustain Bitcoin's rally into year's end. Whether the cryptocurrency reaches the $140,000 level that options traders are targeting will depend on continued institutional inflows and the resolution of the government shutdown.