Bitcoin falls into year-end dilemma: $23 billion options hanging by a thread, Japanese rate hike surprisingly fails to save the day

Options Massive Expiry Sparks Volatility Warning

As we approach early 2026, Bitcoin is caught in a delicate dilemma. Approximately $23 billion worth of options contracts are set to expire next Friday, accounting for over half of the open interest on the world’s largest options trading platform, Deribit. Traders are pricing in ongoing downside risks, and the market environment is becoming increasingly perilous.

On Wednesday during U.S. trading hours, extreme volatility exceeding $130 billion was observed, with long and short positions being liquidated in turn. The total market capitalization of cryptocurrencies fluctuated violently around $3 trillion, with Bitcoin surging by 4% to $89,430 at one point, only to quickly give back all gains. Currently, Bitcoin is trading near $92,640, about 26% below its all-time high of $126,080 set in early October.

Bank of Japan Rate Hike: Market Expectations Already Priced In, No Sign of Safe-Haven Sentiment

On Friday, the Bank of Japan (BOJ) raised its short-term policy rate by 25 basis points to 0.75%, hitting a 30-year high. This move should have triggered yen appreciation and sparked a large-scale unwinding of yen arbitrage trades, even triggering a broad “safe-haven wave.” However, the reality has not aligned with some observers’ concerns.

The yen against the dollar indeed weakened from 155.67 to 156.03. Bitcoin responded immediately, jumping from above $86,000 to $87,500. But this rally was short-lived. The core reason for the tepid market response is that the rate hike decision has been widely digested, and speculative funds have been holding long yen positions for several weeks, suppressing the yen’s sharp appreciation after the policy announcement.

More importantly, even after the rate hike, Japan’s real interest rate (adjusted for inflation) remains negative, and the monetary environment remains accommodative. The BOJ’s statement explicitly states that due to rising import costs and resilient domestic prices, inflation is expected to stay above the 2% target for an extended period. However, this does not alter the fact that Japanese interest rates remain far below U.S. rates, thus not triggering the anticipated large-scale unwinding of yen arbitrage trades.

Bearish Dominance, Year-End Pressure Intensifies

Position structures remain clearly skewed bearish. The 30-day implied volatility has risen back to nearly 45%, and skew indicators hover around -5%, reflecting traders’ pricing of ongoing downside risks through Q1 and Q2. The persistent selling pressure from long-dormant wallets continues to suppress spot prices.

Particularly noteworthy is the distribution of options positions expiring around December 26. Call options are mainly concentrated around strike prices of $100,000 and $120,000, indicating residual optimism for a technical rebound toward year-end. However, in the short term, bears dominate, with a large volume of put options centered around the $85,000 level, with open interest of about $1.4 billion, potentially creating a “magnetic pull” effect before expiry.

Upcoming Catalysts Could Amplify Volatility

After the options expiry, the market is expected to refocus around two major catalysts: first, the MSCI decision on January 15, which may exclude “digital asset treasury companies” holding more than 50% of their assets in crypto from the index; second, a new influx of covered call trading. These factors are expected to amplify downward volatility while limiting upside potential.

Bitcoin has declined 23% this year, heading toward its worst quarter since Q2 2022, when the TerraUSD and Three Arrows Capital collapses severely impacted the industry. Currently, Bitcoin has yet to recover key levels, and the market is stuck in a fragile sideways stalemate.

Despite high volatility and defensive positioning, the upside tail risk has not been entirely abandoned as the market prepares for a turbulent start to the new year. This is a true reflection of Bitcoin’s current state—struggling under multiple pressures of options expiry, policy uncertainty, and locked-in losses, fighting to survive.