(Bloomberg) -- Options traders are loading up on bets that Bitcoin will surge to $50,000 by January, when many market observers expect the SEC to finally allow exchange-traded funds to directly hold the cryptocurrency. 

That’s the price level with the largest open interest, or the total amount of outstanding contracts, to buy Bitcoin with call options that expire Jan. 26, according to data compiled by Deribit,  the largest crypto options exchange. Calls give the buyer of the contracts the right to purchase the underlying asset at a specific price within a set time period. 

Bitcoin last reached $50,000 in December 2021. Digital assets were then in the midst of retreating from all-time highs with the Federal Reserve beginning to remove the record amount of stimulus added during the Covid pandemic. Now with expectations that the Fed is going to pivot on monetary policy next year and a Bitcoin ETF seen as almost a sure thing, the crypto sector is staging an eye-popping rebound. 

“The bullish sentiment is thriving,” said Luuk Strijers, Deribit’s chief commercial officer.

Bitcoin has surged more than 60% since the middle of October, when speculation jumped that the Securities and Exchange Commission was on the verge of signing off on ETF applications from the likes of asset management powerhouse BlackRock. The token was little changed at around $44,000 on Wednesday.        

Combined spot and derivatives trading volume on centralized exchanges rose 40.7% in November, to $3.61 trillion, the highest combined total since March, according to researcher CCData.  

Activities in derivatives such as options and futures have continued to dominate crypto trading as they remain one of the few ways for investors to leverage bets after a slew of major crypto lenders imploded in 2022. In addition, cash-settled options and futures contracts can help traders execute their strategies without having to handle crypto-specific issues like custody. 

Crypto prices languished from late March to early October as a series of industry bankruptcies and scandals began to wind down. 

“Volatility has been dropping like a stone for most part of the year,” said Jaime Baeza, founder and CEO at crypto hedge fund AnB Investments. “The environment has been low volatility, reduced volumes, reduced interest rates in the crypto ecosystem and overall reduced interest in the industry.” 

Now with an Bitcoin ETF likely on the horizon and risk taking is returning to the broader financial markets, traders anticipate more interest in crypto. 

“We’ve seen this year that as BTC moves higher, volatility has followed,” said Greg Magadini, director of derivatives at Amberdata. “So a sustained bull market might bring back some more volatility in the short and medium term.”

--With assistance from Olga Kharif.

©2023 Bloomberg L.P.