A significant development in the cryptocurrency realm has arisen with the record-setting expiry of $18 billion in Bitcoin options today, as analysts from Bitfinex anticipate that this event may trigger delayed volatility over the next 24 to 72 hours. This expiry comes on the heels of a challenging trading week, during which Bitcoin, while clinging to a slight gain for September, has seen the broader crypto market struggle.
The options market, a popular tool among traders for managing risk, is characterized by contracts that grant the right to buy or sell Bitcoin at predetermined prices, known as strike prices. This month’s figures reveal a staggering $78.9 billion in open interest for Bitcoin options, with a notable concentration of calls positioned between strike prices of $115,000 and $125,000.
According to historical trends, large expirations of options contracts tend to create a temporary suppression of volatility leading up to the event, followed by more pronounced price movements shortly afterward. Bitfinex analysts highlight that traders are observing a bearish sentiment in prediction markets, with a slight majority (51%) anticipating further declines over the weekend, as opposed to price increases.
The market for Bitcoin options regularly operates on fixed monthly cycles, typically culminating on the last Friday of the month. When expirations amount to tens of billions of dollars, it often results in traders making swift risk adjustments, which can amplify market volatility.
As October progresses, risk levels within the options market remain high. Crypto data aggregator Coinglass reveals that more than $8 billion worth of options contracts are set to expire on October 31, primarily trades happening on Deribit, the leading Bitcoin options trading platform recently acquired by Coinbase.
Further analysis from Bitfinex indicates that the current options market reflects signs of “long convexity,” implying that traders holding long positions could reap substantial benefits should Bitcoin experience a significant price rally. However, dealers who sold these options are in a position where they may need to engage in aggressive hedging, potentially exacerbating the volatility. This results in a trading pattern where dealers may buy Bitcoin as prices rise, and sell as they fall, consequently augmenting intraday fluctuations.
Market watchers eagerly await how volatility will unfold in the coming days as the effects of this substantial options expiry play out, particularly amid a backdrop of bearish sentiment and recent price trends in the cryptocurrency market.
