$8.2B Bitcoin and Ether Options Expiry: Market Impact

On May 31, a substantial volume of cryptocurrency options is set to expire, which historically brings about price volatility in the crypto market. Specifically, 69,000 Bitcoin options and 920,000 Ether options will be expiring on this day, valued at $4.7 billion and $3.5 billion respectively.

Analyzing data from Deribit, it’s evident that the put/call ratio for the expiring Bitcoin options stands at 0.61. This means there are more call options (bets on price increases) set to expire compared to put options (bets on price decreases). In contrast, the put/call ratio for Ether options is 0.46. The put/call ratio (PCR) serves as a technical measure of market sentiment, with a value below 0.7 signaling bullish sentiment and a value above 1 indicating bearish sentiment.

The concept of “max pain” plays a crucial role in understanding trader losses. For Bitcoin, the max pain point is at $66,000, while for Ether, it is $3,300. Currently, Bitcoin is trading at $68,210, which is $2,000 above the pain point, and Ether is trading at $3,738, more than $400 above its pain point. This suggests that traders with these positions may incur significant losses as the expiry date approaches.

A significant amount of open interest (OI) reflects a bullish outlook, with many long positions targeting higher strike prices. For example, numerous derivatives contracts for Bitcoin are open at strike prices of $70,000, $75,000, $80,000, and even $100,000. Open interest refers to the total number of outstanding derivative contracts that are yet to be settled, and the higher the OI, the greater the market interest in particular price targets.

A noteworthy development is that some traders have opened long positions with an ambitious target of $100,000 for Bitcoin. With $886 million in open interest at this strike price, it clearly reflects a strong sentiment towards this level. Cumulatively, the total notional value of all outstanding Bitcoin options contracts peaks at $19 billion, indicating considerable market speculation and investment.

The approval of a spot Ether ETF by the Securities and Exchange Commission (SEC) in May had a significant positive impact on the market. Ethereum prices saw a 20% increase in anticipation of this approval. The SEC only approved the 19b-4 filing, delaying the actual trading listing, which dampened some of the bullish enthusiasm.

Since the approval, the market has exhibited bearish and sideways movement. Ethereum has struggled to climb above the $4,000 mark, and Bitcoin has remained below the $70,000 threshold. This stagnation suggests a correction phase after substantial gains over the previous fortnight.

The crypto market appears to be recalibrating following the recent bullish surge. With significant amounts of options nearing expiry, traders are facing potential volatility and reassessment of their positions. The landscape remains ripe for price fluctuations as key expiry dates and market developments continue to unfold.