About $3.6 billion in Bitcoin options contracts on some of the largest derivatives exchanges are expiring later in the day. What does this mean for the price of the largest digital coin?
According to Coinglass and CME data, the most options available are on Deribit with $95 million and CME with $1.6 billion worth of expiring contracts.
In the world of derivatives, options allow traders to speculate on or hedge against the volatility of an asset. With Bitcoin options, traders purchase contracts that allow them to buy or sell the asset at an agreed price at a later date.
This means that until the end of the contract you have the opportunity to buy or sell the product at the predetermined price – regardless of how much the price has changed.
Traders do not have to buy Bitcoin when their contract expires. As the name of the contracts suggests, it is merely an option. Traders who know they do not want to exercise their option at expiration can also roll it over or close it out now at market price and open a new contract that expires at a later date.
Options expiration does not always guarantee volatility, experts told Decrypt. If the options contracts expire without being exercised, the price of the asset is unlikely to change.
As for this month's options contracts, the maximum pain – or the price at which most contracts expire without a profit – is $48,000, Derebit data shows. This means that if the price of BTC reaches $48,000 before expiration, a large number of traders would suffer a loss.
The prevailing prediction among analysts is that if Bitcoin can stay above $48,000 when options expire this month, traders will exercise their contracts and use this as an opportunity to take profits. In other words, BTC could face significant selling pressure today.
Coinglass data shows that traders are overall quite optimistic. Of all open Bitcoin positions, regardless of expiration date, 62% are calls, meaning that traders who have entered into the contract are optimistic that the price of Bitcoin will be higher by the expiration date. 38% are puts – a bet that the price of the asset will fall.
Today's expiration of $3 billion is nothing compared to the value of the contracts expiring on March 29th.
For example, $95 million worth of options expire on Derebit today. But there are $4.7 billion worth of March contracts on the exchange. The same goes for open interest on the CME, where $1.6 billion worth of contracts expire today and nearly $18 billion expire at the end of March.
This is likely because traders are expecting the Bitcoin halving to lead to strong price movements in BTC. Bitcoin halving reduces the reward paid to Bitcoin miners for validating transactions. This time it will increase from 6.5 BTC to 3.25 BTC. In the past, increasing scarcity usually triggered a price rally in Bitcoin.
According to CoinGecko, BTC is currently trading for $51,000.57, down 1.7% in 24 hours. Over the past seven days, the largest digital coin has barely moved.
The asset's price has skyrocketed since the start of the year when it traded for $44,168. The approval of spot Bitcoin exchange-traded funds (ETFs) on January 10 has led to a flood of capital into the crypto space.
Edited by Stacy Elliott.
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