Record-Breaking $14B Bitcoin Options Expiry Ahead, What’s Next?

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As a seasoned analyst with over two decades of experience in the financial markets, I’ve witnessed many market events that have shaped the course of various asset classes. However, this upcoming expiry event on Deribit, particularly the $14 billion Bitcoin options contracts and the $3.84 billion Ethereum options, is undeniably one of the most significant I’ve encountered in the cryptocurrency space.

Approximately $14 billion in Bitcoin options contracts, accounting for 44% of the total open interest for Bitcoin options on Deribit, are scheduled to expire on December 27th. This is the largest such event on the exchange. At the same time, options worth around $3.84 billion for Ethereum (ETH) will also be settled.

Trading options on assets like Bitcoin gives investors a chance to make predictions about price movements or protect themselves from possible losses. This upcoming Friday could see approximately $4 billion of these Bitcoin options expire profitably (ITM), benefiting the buyers. However, there’s a possibility of market instability as traders might choose to renew their positions or sell them off to manage risk.

In the meantime, analysts anticipate a potential change in open interest toward the dates of January 31st and March 28th. This shift could lead to new market behaviors in the year 2024.

Directional Uncertainty

The extraordinary magnitude of this expiration event has increased the market’s directional ambiguity. In a recent interview, Deribit’s CEO, Luuk Strijers, pointed out the elevated risk of a “snowball effect” if the market persists under bearish pressure. Despite the put-call open interest ratio being 0.69, suggesting a greater preference for bullish wagers, Bitcoin’s price has experienced a substantial drop. Here are its current details:

Bitcoin experienced a significant drop of about 13% after reaching an all-time high of $108,268, following the Federal Reserve’s firm stance on increasing interest rates. This move has diminished expectations for the traditional “Santa rally”. As reported by CoinMarketCap, the leading cryptocurrency is currently trading at approximately $93,940, representing a 2.2% decrease in the last 24 hours.

As a crypto investor, I’ve noticed that options-based metrics indicate a certain hesitancy in the market right now. The volatility of volatility, or vol-of-vol as it’s often called, is still quite high. This means that price changes are quite unpredictable and could lead to sudden, significant shifts in value, especially for traders who have leveraged positions. In simpler terms, the market’s mood swings could become even more extreme, so it’s important to keep a close eye on investments.

Ethereum Faces Bearish Sentiment

Ethereum (ETH) currently stands at $3,400, showing a 24-hour volatility of 1.6%. Its market capitalization is an impressive $409.64 billion, with a 24-hour trading volume of $30.20 billion. However, Ethereum seems to be more susceptible than Bitcoin in the upcoming expiry period. Block Scholes data indicates a decrease in implied volatility for ETH call options, suggesting decreased interest in bullish bets. Furthermore, the put-call skew for ETH, at 2.06%, favors puts over calls, pointing towards a bearish perspective compared to Bitcoin’s relatively neutral position.

Significantly, Ether experienced a decline of approximately 15% in its value following a robust resistance point of $4,000. Currently, it’s being traded at around $3,400, showing an increase of 1.78% over the last 24 hours.

Altcoin Rally Ahead?

Some experts predict a potential shift in investor funds from Bitcoin to other alternative cryptocurrencies (altcoins) if Bitcoin continues within its current price range.

The investment firm QCP Capital, based in Singapore, sees a possibility that alternative cryptocurrencies (altcoins) might become more popular following this significant event. They commented, “With Bitcoin still finding it hard to surpass 100k, we may also observe altcoins attempting to match their performance again.

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2024-12-24 15:42