Impact of Bitcoin’s Options Expiry on the Market: What You Need to Know

Steady as She Goes: The Rise of Bitcoin Options

Over the past two months, Bitcoin options have remained surprisingly stable, all while open interest surged by a whopping 118%. With Bitcoin (BTC) hitting new all-time highs, the open interest bolsters an impressive $8.4 billion. But what does this mean for investors? Buckle up, because this ride is about to get bumpy with a historic $3.8 billion expiry set for Jan. 29!

Comparing Apples to Oranges: Bitcoin Spot Volume Discrepancies

To fully grasp the implications of such an enormous expiry, one must compare it to the trading volumes at spot exchanges. You might be dazzled by figures often touted as ranging from $50 billion to $100 billion in daily Bitcoin volume. However, a revealing report by Bitwise Asset Management in 2019 uncovered that many exchanges might just be engaging in a little creative math when inflating their volumes. Thanks, but no thanks.

• Rely on trusted data aggregators.
• Spot volume averaged approximately $12 billion over the past month, a staggering 215% increase compared to the previous month.

This means that the impending $3.8 billion expiry accounts for a jaw-dropping 35% of daily spot BTC average volume. Time to pay attention!

The Big Expiry: What’s Gonna Go Down?

As we race toward January 29, it’s important to note that 45% of all Bitcoin options are set to expire on this day. In the past, exchanges offered monthly expiries but now even have weekly options for those who crave short-term thrills. On December 25, 2020, a record-breaking $2.4 billion worth of options expired, representing a mere 31% of total open interest. Clearly, we’re in for something monumental this time around.

Buried Treasure or Fool’s Gold? Open Interest Breakdown

Genesis Volatility reports show that Deribit’s expiry calendar for Jan. 29 currently boasts 94,060 BTC. That’s a remarkable concentration of open interest with 45% of contracts expiring in just twelve days. Now consider that about 68% of bearish put options below $28,000 have already gone to the “options graveyard.” Most importantly, only 39% of that $3.8 billion set to expire are worth pursuing!

Finding Bullish Signals in a Sea of Red: Analyzing Market Sentiment

So, what’s a trader to do? A robust way to gauge market sentiment involves analyzing delta skew. A 10% delta skew indicates that call options are trading favored prices relative to put options. All eyes should be on this indicator – the last time it sparked bearish sentiment was after Bitcoin’s price plummeted 15% on January 10. Since then, a wave of optimism has flooded the market, indicating bullish sentiments amid this colossal expiry.

While the $3.8 billion expiry might make your heart race, it’s crucial to note that nearly 60% of available options are already considered worthless. Yet, with BTC prices sitting comfortably above the $30,000 to $32,000 range, the bulls look like they’re making the rules!

Final Thoughts: Onward and Upward?

The views expressed here are solely those of the author and don’t necessarily mirror those of larger financial institutions. While investing may be fraught with risks, knowledge is your best life jacket in these stormy waters. Remember to do your homework before diving into the depths of Bitcoin investing!