Bitcoin, Ether could witness upside volatility

As the cryptocurrency market gears up for a significant event, South African investors are closely watching. The impending expiration of Bitcoin and Ether options contracts, valued at billions of dollars, could trigger notable price movements. This Friday, at 08:00 UTC, Deribit, a leading figure in the cryptocurrency options exchange arena, will see the settlement of quarterly contracts amounting to $15.2 billion (R288.192 Billion). Of this staggering sum, Bitcoin options constitute $9.5 billion (R180.12 Billion) or 62%, with Ether options making up the remainder.

This event, marking one of Deribit’s largest expiries, is poised to erase a significant portion of the total notional open interest for both Bitcoin and Ether. Notional open interest represents the active contracts’ dollar value at any time. On Deribit, a single contract correlates to one BTC or ETH, highlighting the exchange’s dominance with over 85% of the global crypto options market share.

Luuk Strijers, Deribit’s Chief Commercial Officer, sheds light on the potential market impact. A substantial volume of options are anticipated to expire in-the-money (ITM), potentially leading to increased market volatility or upward price pressure. An ITM call option, for instance, allows the holder to purchase Bitcoin below the market rate, thus securing a profit.

According to Deribit’s data, an impressive $3.9 billion (R73.944 Billion) worth of Bitcoin options are on track to expire ITM. This figure represents 41% of the total quarterly open interest due for settlement. Similarly, Ether’s ITM expiry stands at 15% of its total quarterly open interest, signifying higher than usual levels of ITM expiries which could foster upward market dynamics.

Strijers also notes the ‘max pain’ points for both BTC and ETH’s quarterly expiries, set at $50,000 (R948,000) and $2,600 (R49,296), respectively. The ‘max pain’ theory suggests that option sellers aim to keep prices near this point to maximize buyers’ losses.

In the backdrop of a recent price rally, the expiry could remove the downward pressure exerted by lower max pain levels, according to Strijers. Additionally, David Brickell from FRNT Financial highlights the role of market makers’ hedging activities in potentially boosting volatility. With dealers positioned short on gamma around the $70,000 (R1,327,200) strike, the lead-up to expiry may see heightened price fluctuations.

For South Africa’s vibrant crypto community, this event underlines the importance of staying informed and prepared for potential market shifts. As the global crypto market navigates through this significant options expiry, local investors and enthusiasts are poised to witness possibly volatile yet opportunistic trading landscapes.