As a significant options expiration date approaches, the cryptocurrency market is preparing for a key phase of increased volatility. On December 27, up to 14 billion dollars worth of Bitcoin options will expire, a significant event that could reshape short-term price trends and influence investment strategies. Analysts expect this event to spur intensified trading activity, leading to significant price fluctuations and increased market turmoil.
Currently, the open interest in Bitcoin options reflects traders' bullish outlook, with market sentiment leaning towards optimism. However, this bullish trend faces obstacles, as holidays usually bring lower trading volumes and liquidity, which may exacerbate price volatility.
This Friday, a record 14 billion dollars in Bitcoin options will expire, accounting for 44% of the total open interest during the expiration period on the Deribit exchange, marking the largest open interest in the exchange's history. Deribit’s CEO stated that this significant event could exacerbate market volatility and potentially trigger a chain reaction due to the high leverage levels in the market.
As of the time of writing, 4 billion dollars worth of Bitcoin options (28% of the total open interest of 14 billion dollars) are expected to expire 'in-the-money (ITM)' this Friday, bringing profits to buyers. These positions may be closed or rolled over (transferred) to the next expiration date, which could lead to market volatility.
While high volatility can benefit buyers by increasing the chances of options being 'in-the-money' before expiration, it also poses risks for traders holding bullish positions. If Bitcoin's price approaches 98,000 dollars, traders may feel the need to reassess their positions, potentially leading to market corrections.
GSR portfolio manager and trader Simranjeet Singh stated, 'I suspect a considerable portion of the open interest for BTC and ETH will expire on January 31 and March 28, serving as recent liquidity anchor points at the start of the new year.' He also noted that the put options set to expire on Friday have an open interest ratio of 0.69 with call options, meaning for every 10 open call options, there are 7 put options. The relatively high open interest in call options provides buyers with asymmetric upside potential, indicating an upward tilt in leverage.
The December 27 expiration is a significant turning point for the market. If it can close above 105,000 dollars, it will solidify bullish momentum and support optimism for 2025. Conversely, if it falls below 95,000 dollars, it will provide bearish traders with a temporary opportunity to control the market.
Deribit CEO Luuk Strijers stated that the previously dominant bullish momentum has stalled, resulting in high leverage in the market. If a significant downward trend occurs, this positioning increases the risk of a rapid snowball effect, 'everyone's eyes are on this expiration, as it has the potential to shape the narrative entering the new year.'
Despite Bitcoin's recent stagnation possibly continuing, the upcoming options expiration might become a trigger for altcoin surges. Investors are focusing on attractive levels around 90,000 for Bitcoin, indicating that altcoins may benefit from any potential correction in Bitcoin's price. The interaction between traditional markets and digital markets, along with the impact of the U.S. stock market on crypto assets, adds extra uncertainty to this festive week.
QCP Capital analysts point out that 'as BTC continues to struggle below 100,000, we may also see alternatives start to catch up again.' They add that a month ago, when Bitcoin was trading at current price levels, a similar trend was observed. The Ether/Bitcoin ratio rebounded from the support level of 0.032 at that time, stimulating the movement of altcoins. The cryptocurrency market often experiences cycles where Bitcoin leads and altcoins follow closely. Investors capitalizing on new market gains seek additional returns, and the flow of funds into altcoins can lead to significant short-term increases.
