On January 5, the cryptocurrency world will witness the expiration of nearly $1 billion worth of Bitcoin options contracts. This substantial event has sparked speculation about its potential impact on Bitcoin’s price and overall market sentiment.
While crypto markets have experienced a retreat during the early days of the new year, the expiry of these options contracts can trigger market dynamics that could drive prices higher or maintain the current downward trend.
Bitcoin options expiry
Around 21,900 Bitcoin options contracts are set to reach their expiration date, as reported by Deribit, a prominent player in the options market. Despite being smaller in scale compared to the year-end expiry event, the notional value of these contracts remains significant, hovering around $955 million.
An interesting aspect of this batch of contracts is the put/call ratio, which stands at 0.62. This ratio indicates that approximately half as many more call (long) contracts expire than put (short) contracts.
Furthermore, one notable price point is $43,000, known as the “max pain point.” However, the real intrigue lies in the concentration of call options at the $50,000 strike price, with a substantial 23,884 call contracts in this range. This concentration suggests that many traders anticipate a rise in Bitcoin prices by the end of the January expiration date.
Changing market dynamics
It is essential to acknowledge that the overall open interest (OI) in the Bitcoin options market has declined from the record levels witnessed in the previous year, now standing at around $10.7 billion, according to Deribit. This shift in market dynamics could indicate evolving trader sentiment and strategies.
Earlier in the week, concerns arose about the possibility of the U.S. Securities and Exchange Commission (SEC) rejecting spot Bitcoin exchange-traded funds (ETFs). This development might have contributed to a drop in options implied volatility, which plunged to 52% for the week and dipped below 65% for the January 12 expiration. It’s worth noting that lower implied volatility can impact options pricing and trader strategies.
Additionally, market observers have pointed out that current-month puts have become more affordable, increasing put buying through block trades. This suggests that institutional investors may not be overly bullish on the prospects of Bitcoin ETFs, aligning with the overall cautious sentiment in the market.
Market volatility and liquidations
This week, crypto markets experienced a 5% downturn, resulting in a significant liquidation event. Approximately $700 million in liquidations occurred, with the majority (85%) being calls dominated by Bitcoin positions. This event underscores the importance of managing risk in the highly volatile cryptocurrency space, especially when trading leveraged positions.
In addition to the noteworthy Bitcoin options expiry event, many Ethereum options contracts are also set to expire, with a notional value of $574 million. These contracts’ put/call ratio stands at 0.54, reflecting a somewhat balanced sentiment between calls and puts.
As the Bitcoin options expire, how their settlement or renewal will impact spot prices remains to be seen. Nevertheless, all eyes in the cryptocurrency community are currently fixed on the developments surrounding the SEC’s potential approval or rejection of spot Bitcoin ETFs. This decision, expected in the coming week, could have far-reaching implications for the crypto market’s future trajectory.
