() Prices have soared in recent weeks, with the December contract reaching an all-time high of $105,325 on December 5, and the June 2025 contract reaching $110,935 on the same day.
This surge in value has sparked debate among investors and analysts about the possibility of a Bitcoin bubble. Winhall Risk Analytics/OptionMetrics contributor Brett Friedman examines five factors to consider.
Is a Bitcoin bubble forming?
While the characteristics of financial bubbles are often not apparent until hindsight, Friedman suggests that certain indicators can signal that markets are overheating.
For example, if the gap between implied volatility and out-of-the-money and at-the-money volatilities in options trading is widening, the market may be overbought. Although Bitcoin spreads have widened, they have not reached “abnormal levels.”
Futures curves can also provide insight into market dynamics. An inverted curve, where short-term contracts are priced higher than long-term contracts, or a flattened contango curve may indicate bubble-like behavior.
However, since the introduction of futures in late 2017, Bitcoin has been in contango, with its deferral months recently outperforming neighboring contracts. This trend suggests traders are confident in the sustainability of the bull market through 2025, but it would not match the typical short-lived bubble pattern.
Another sign of market fizz in the crypto market is a spike in trading volume and open interest, Friedman said.
Since the election, there has been increased activity in Bitcoin futures, particularly in micro-BTC contracts favored by retail investors. Open interest in micro BTC contracts has jumped almost 2.5 times compared to before the election, while open interest in full-size contracts has remained stable.
“This may indicate that traders are willing to accept the risk of forward contracts and believe the current bull market is sustained and will continue into 2025,” he said.
“If Bitcoin were forming a bubble, this would not be the case, as Bitcoin is typically short-lived and confined to the tip of the curve.”
Another factor that prompted Friedman to consider whether Bitcoin is truly in a bubble is the emergence of related financial products that offer high leverage and the promise of quick returns. The proliferation of products such as MicroStrategy stock, leveraged Bitcoin-related ETFs, and crypto evangelists on social media may indicate speculative behavior.
So what is his conclusion?
There are signs of enthusiasm in the Bitcoin futures market, but it's not yet clear whether this is a bubble.
“There is evidence that the market may indeed be frothy, but we are not necessarily headed for a full-blown bubble.
“In the short term, it looks like BTC needs new bullish fundamentals or it needs to recover over $100,000 to reignite speculation that a bubble may be forming.” “There will be,” he concluded.
