In a notable development for cryptocurrency markets, approximately $31 billion worth of Bitcoin options are poised to expire on Halloween, marking an unprecedented monthly expiry that eclipses last month’s $18 billion. This surge in options expiring comes despite a recent flash crash on October 10, which led to the liquidation of $19 billion in leveraged positions.
According to analysts at Bitfinex, the October flash crash resulted in a significant reduction of open interest, erasing roughly $7 billion in Bitcoin options and pulling total open interest from about $38 billion down to near $31 billion. This notable contraction is characterized as the sharpest weekly decline since June. However, despite these setbacks, open interest on the leading cryptocurrency derivatives exchange, Deribit, has reached an all-time high of $50.27 billion, indicating heightened institutional interest and hedging against potential downside risks.
Deribit, which was acquired by Coinbase earlier this year, has around $14 billion in options contracts set to expire next Friday. Their figures are supplemented by the CME, the largest derivatives exchange globally, which hosts another $13.5 billion in Bitcoin options set to mature in the same timeframe. Notably, there is a significant concentration of put contracts with a $100,000 strike price, representing $2 billion in open interest. Concurrently, call contracts are clustering around the $120,000 level, suggesting that traders are betting on potential rebounds or increased volatility.
As of Friday morning, Bitcoin’s price was reported at $109,866, reflecting a slight increase of 0.2% in the past day. Analysts express caution concerning large expiries, warning that such circumstances may precipitate volatility. Historical trends indicate that substantial expirations often lead to suppressed volatility leading up to the cut-off date, followed by a clearer directional move in the aftermath.
Traders remain on high alert due to the possibility of cascading liquidations, especially after the recent crash caused significant market upheaval. This scenario involves forced selling, where leveraged long positions are closed due to sudden price drops, leading to further downward pressure on Bitcoin’s price. As Carlos Guzman from GSR aptly noted, this creates a dynamic where a single liquidation can spiral into multiple sell-offs, diminishing market liquidity.
In addition to these developments, Bitcoin investors are closely monitoring the latest Consumer Price Index report from the Bureau of Labor Statistics, which was delayed due to the ongoing government shutdown. Attention is also focused on the upcoming Federal Open Markets Committee meeting, with traders assigning a 97% probability to the likelihood of a rate cut announcement.
On the Bitcoin ETF front, flows have considerably slowed since the beginning of the month. Initial strong inflows of $2.7 billion in the first week were reversed in the second week, ending with a $1.2 billion outflow following the October 10 crash. Nevertheless, Bitcoin funds reported a net inflow of $356 million this week, according to data from asset manager Farside Investors.
Despite the recent turbulence, analysts at Bitfinex remain optimistic about the future trajectory of Bitcoin. They assert that large open interest wipes—ranging from 20% to 40% across all strikes—often correlate with price increases in the months that follow. They believe that although the market is in a consolidation phase, it is premature to conclude that a market top has been reached.
As the expiration date approaches, the notional value of the options may still undergo significant fluctuations. Traders have begun shifting their positions to the November contracts, though current put-call skews remain elevated at 5% and 4% for one-week and one-month contracts, respectively. The market has adjusted its pricing after mid-month rallies, fully pricing in two potential Fed rate cuts by the end of the year following softer-than-expected U.S. inflation data.
