(Bloomberg) -- While now seen as a sure thing by the vast majority of the Bitcoin community, the options market is showing that traders are hedging bets ahead of a Jan. 10 deadline for the US to decide whether to allow exchange-traded funds holding the cryptocurrency. 

The open interest, or the total amount of outstanding contracts, for puts allowing holders to sell the digital currency expiring on Jan. 12 has surged. That’s made the put-to-call ratio on the contract well above those for contracts with other expiration dates further out from the deadline, according to data compiled by Deribit, the largest crypto options exchange.

The strike prices on the put contracts with the most open interest are for $44,000, $42,000 and $40,000, respectively. With Bitcoin currently trading around $43,500, that means put holders would be able to exercise the options and minimize losses if the cryptocurrency reacted negatively to the looming decision by the US Securities and Exchange Commission.  

Bitcoin has been one of the best performing assets this year, rallying more than 60% alone since the middle of October as expectations for ETF approval skyrocketed. That has also raised the risk that the much touted coming surge in demand for the funds may already be factored into the token price. 

“The most recent rally is being driven by leveraged/speculative money,” said Ryan Kim, head of derivatives at digital-asset prime brokerage FalconX. “These traders could be finding it prudent to spend premium to protect their leveraged longs with some BTC puts, betting on a big move in either direction.”  

Bitcoin’s rally has helped to soften the blow from the token’s 64% decline in 2022, and even led to scores of predictions that the price will climb to $100,000 and beyond next year on the back of ETF demand. Bitcoin is still well below its all-time high of almost $69,000 reached in November 2021. 

“The potential explosion in price and vol will pay off if the ETF decision is positive,” said Luuk Strijers, Deribit’s chief commercial officer. That explains why there’s a higher put-call ratio for Jan. 12 options, which offer protection from a negative decision, he added.   

The put-to-call ratio, which is often seen as a measure of overall market sentiment, was 0.69 for the Jan. 12 contracts. That’s higher than the ratio for contracts set to expire Jan. 5 and Jan. 26. The lower the ratio is, the more bullish traders are on the price.

However, even if Bitcoin ETFs are approved, it is likely that demand for the funds at the start will fall short of market expectations, according to a Dec. 21 report by Singapore-based crypto asset trading firm QCP Capital.

“This sets up a classic ‘sell the news’ scenario in the second week of January,” the report said. “For this reason, we expect topside resistance for BTC in the 45-48.5k region and a possible retracement to 36k levels before the uptrend resumes.”     

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