About $3.6 billion worth of Bitcoin options contracts on some of the largest derivatives exchanges are set to expire later today. What does the price of the biggest digital coin mean?
Most of the options are with Deribit, which holds $95 million worth of contracts, and CME, which holds $1.6 billion worth of expiring contracts, according to Coinglass and CME data.
In the world of derivatives, options allow traders to speculate on or hedge against the volatility of an asset. With Bitcoin options, traders purchase a contract to buy or sell an asset at a later date at an agreed upon price.
This means that you have the option to buy or sell it at a predetermined price, regardless of how much the price has changed until the contract expires.
Traders do not need to purchase Bitcoin when the contract expires. As the name of the contract suggests, it is just an option. A trader who knows that he does not want to exercise his option upon expiration can either roll that option forward or liquidate it now at the market price and open a new contract expiring in the future.
Option expiration does not always guarantee volatility, experts said. decryption. If an option contract expires without being exercised, the price of the asset is unlikely to move.
For options contracts this month, the maximum pain (the price at which the maximum number of contracts expire without any gain) is $48,000, Derebit data shows. This means that many traders could suffer losses if the BTC price reaches $48,000 before expiration.
The general prediction among analysts is that if Bitcoin can stay above $48,000 when options expire this month, traders will exercise their contracts and use it as an opportunity to take profits. That said, BTC could see significant selling pressure today.
Coinglass data shows that, overall, traders are feeling pretty optimistic. For all Bitcoin open interests, 62% are calls, regardless of expiration date. This means that the trader who entered the contract is optimistic that the price of Bitcoin will go higher by the expiration date. 38% are put options, bets on asset prices falling.
Today’s $3 billion maturity is nothing compared to the value of the contract expiring on March 29th.
For example, today Derebit has $95 million worth of options expiring. However, there is $4.7 billion worth of March contracts on the exchange. The same goes for open interest on CME. CME’s open interest expires today, with $1.6 billion worth of contracts expiring, and about $18 billion expiring at the end of March.
This is likely because traders are expecting the Bitcoin halving to trigger a lot of price action for BTC. Bitcoin halving reduces the rewards paid to Bitcoin miners for verifying transactions. This time it changes from 6.5 BTC to 3.25 BTC. In the past, increased scarcity has typically triggered Bitcoin price increases.
According to CoinGecko, BTC is currently trading at $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 soared since the beginning of the year, when it was trading at $44,168. The approval of a spot Bitcoin exchange-traded fund (ETF) on January 10th has flooded the cryptocurrency industry with capital.
Edited by Stacy Elliott.